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                        Research and Insights
                        Perspectives
                        One-Third of Recent Homebuyers Still Don't 'Shop Around' for Mortgages
    Perspectives Blog
One-Third of Recent Homebuyers Still Don't 'Shop Around' for Mortgages
November 18, 2022
John Thibaudeau
    John Thibaudeau
    Vice President, Single-Family Real Estate Asset Management
              Rachel Zimmerman
    Rachel Zimmerman
    Market Research Advisor, National Housing Survey Lead
For potential homebuyers, obtaining multiple mortgage quotes may not be as exciting as searching for the physical home itself, but research has shown that "shopping around" with different lenders for the best possible mortgage terms can result in significant savings.1,2 Even so, Fannie Mae's National Housing Survey® (NHS) results over the past eight years have consistently shown that one-third of recent homebuyers obtained only one mortgage quote. Would one-third of homebuyers only look at one home before buying it? Probably not. In fact, qualitative research has shown that homebuyers spend a substantial amount of time looking for a home and negotiating price and repairs, but much less time looking for a lender who can offer the best mortgage quote.3

Fannie Mae's Economic & Strategic Research group used the Q1 2022 NHS to revisit several of the same questions that have been asked of recent homebuyers since 2014, and it showed that mortgage shopping behavior has remained consistent over that time period, indicating, again, that many consumers would benefit by devoting more time to researching mortgage costs and comparison shopping when buying a home.

**Survey Results**

According to our latest survey from Q1 2022, 36% of 2021 homebuyers received only one mortgage quote, consistent with survey findings from prior years, Q1 2014 and Q1 2019. Interestingly, first-time and repeat homebuyers do not show much difference in their mortgage shopping behavior; approximately one-third of both groups received only one quote across all years.






Click image above for larger view

In Q1 2022, the top two reasons cited by recent homebuyers *who only received one quote* were the same top reasons cited in Q1 2019 and Q1 2014:

Feeling most comfortable with the lender they received the quote from (39%)
	Satisfaction with the first quote they received (29%)Feeling comfortable with a lender or "satisfied" with the first mortgage quote could be interpreted as taking the "easy" path, since it requires less time investment and critical thinking during a process that many people already find complex and stressful. Homebuyers, especially first-time homebuyers, may feel overwhelmed with the complexity of comparing the many components that make up mortgage costs, including interest rate, closing costs, and points across different mortgage offers. Behaviorally, consumers might prefer to make a quick decision and opt to go with their first mortgage quote.

However, one-third of repeat, more experienced buyers also reported only getting one mortgage quote, despite being more familiar with the purchase process. Their rationalization for only getting one mortgage quote may be different – perhaps some repeat buyers may feel confident that they received the best deal from a lender they trust, or perhaps they're less price sensitive. More behavioral research likely needs to be done to explain why repeat homebuyers seek mortgage quotes with approximately the same frequency as first-time homebuyers.

It's likely that innovation to simplify the process by which consumers can compare mortgage quotes would help a substantial portion of homebuyers make better, more informed decisions – and help many save money on their monthly mortgage payment. Several simplified mortgage comparison solutions have been proposed over the years, examples include  "no-cost" or "zero cost" mortgages, a product option in which closing costs are incorporated into the mortgage rate, and consumers need only compare one number – their mortgage rate – across mortgage quotes.4 Thaler and Sunstein's newest 2021 edition of the book "Nudge" mentions ways to simplify or "nudge" better mortgage choices – such as creating a "mortgage choice engine" (like an online travel website), where a borrower can plug in their relevant information (e.g., down payment, credit score) and the tool impartially searches for and offers the lowest cost/best mortgage options – and the engine would be regulated/audited, ensuring it remains objective.5 The CFPB has also developed a tool for consumers to explore mortgage rates offered by lenders in a homebuyer's specific locality.6 All are ideas designed to make it easier to shop around for mortgage quotes, and there could be even more innovative ideas and tools waiting to be developed.

**Negotiating Mortgage Terms**

The latest survey results also showed that homebuyers' negotiation of mortgage-related costs declined from 2019 to 2022. Only 33% of recent homebuyers surveyed in Q1 2022 tried to negotiate the mortgage rate, compared to 40% in Q1 2019. Discount points, mortgage insurance, and appraisal fees were the next top areas that homebuyers tried to negotiate, although to a lesser degree than mortgage rate – less than 15% of homebuyers tried to negotiate each of these items in 2022, and a slightly higher percentage of homebuyers tried to negotiate those costs in 2019. The decrease in negotiating could be due to the historically low mortgage rate environment and highly competitive housing market homebuyers were experiencing when buying homes in 2021. It could also indicate that some consumers do not know they have the ability to negotiate.

Top Mortgage-Related Fees
In both survey years, homebuyers who shopped for multiple mortgage quotes were significantly more likely to try to negotiate mortgage-related costs, such as interest rate and origination fees, compared to those who received only one quote. Interestingly, a higher percentage of Hispanic homebuyers reported negotiating more costs, including mortgage rate and discount points, than White or Black homebuyers. Additionally, higher-income homebuyers (>80% AMI) were more likely to report negotiating mortgage-related costs than lower-income homebuyers (<80% AMI).

Understanding what compels various demographic segments to feel more comfortable negotiating mortgage terms would likely help inform homebuying best practices. Of course, a mortgage is the sum of all the costs involved – rate, closing costs, points – so understanding whether these consumers received a better deal after negotiating would also be important.

**Title and Settlement Services**

In Q1 2022, a large majority (91%) of homebuyers did not shop around for title and settlement services after receiving their lender's closing cost estimate, despite the fact that title costs are listed as items you can shop for. Instead, homebuyers typically followed what was recommended, perhaps an indication that they do not know how to shop for these services, or they find it easier to go along with what their lender or realtor recommends. Title companies, therefore, may experience very little competition from a cost perspective, particularly after they become a company that is frequently recommended by agents and lenders.

**Mortgage Quote Comparisons**

Of those who received multiple mortgage quotes, the quoted interest rate and monthly payment were the top mortgage-related items that homebuyers compared. Monthly payment was significantly more important to first-time homebuyers (the majority of whom tend to be younger and lower-income) compared to repeat homebuyers. Closing cost estimates were the third-most important cost item to compare among recent homebuyers.

Top factors in comparing quotes
**Conclusion**

These results suggest to us that there remains substantial room for improvement in mortgage shopping and negotiating behavior during the homebuying process. Despite a plethora of readily available information, over the last decade a consistent percentage of consumers still obtain only one mortgage quote, indicating perhaps that not much has changed to make it easier for consumers to shop around. For most, the cost of purchasing a home will be the largest expenditure of their lifetime, and spending time on the mortgage details upfront could offer substantial savings over the life of the loan. We believe that more innovation in the mortgage comparison process, such as creating user-friendly technology or systems designed to offer transparent, impartial, and easy-to-understand quote comparisons across potentially different loan types, may incentivize people to seek additional mortgages quotes and ultimately provide substantial savings for borrowers.

To learn more, access the associated research deck.

*November 18, 2022*

*The authors thank Matthew Classick, Steve Deggendorf, Nuno Mota, and Elisa Spano for valuable contributions in the creation of this commentary and the design of the research. Of course, all errors and omissions remain the responsibility of the authors.*

*Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group or survey respondents included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group or survey respondents represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.*

1  Woodward, S., Hall, R. Diagnosing Consumer Confusion and Sub-Optimal Shopping Effort: Theory and Mortgage-Market Evidence (stanford.edu)

2  Know Before You Owe: Mortgage shopping study | Consumer Financial Protection Bureau (consumerfinance.gov)

3  Lack of Mortgage Focus Complicates Home Purchase: An Ethnographic Study Among Low- and Moderate-Income Households | Fannie Mae

4  Woodward, Susan, 2008, A Study of Closing Costs for FHA Mortgages (huduser.gov), p. 70-73

5  Thaler, R., Sunstein, C. (2021) “Nudge, Final Edition” Chapter 11: Borrow More Today, Mortgages and Credit Cards

6  Explore interest rates | Consumer Financial Protection Bureau (consumerfinance.gov)

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