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  • Homebuyers should consider their mortgage options


    For most Americans, buying a home is the biggest purchase they will ever make, which is why it's surprising the Consumer Financial Protection Bureau reported nearly half of all mortgage borrowers in the U.S. don't consider all their options when looking to secure financing for a home purchase [1].

    In a prepared statement at the Brookings Institution, Richard Cordray, director of the CFPB, said trying to acquire financing is a daunting task for many homebuyers.

    "Almost nobody looks only at one house and decides to stop right there," Cordray said. "Consumers spend considerable time looking at different neighborhoods and at different homes for sale. The same should be true of choosing among possible mortgage loans."

    Cordray is helping launch a "know before you owe" initiative that will help consumers avoid any pitfalls when looking at mortgages with a bank or financial institution.

    "Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating," Cordray said. "Consumers will be able to gain greater control over the outcomes of the mortgage process and maximize the benefits of this major transaction."

    Consider the options when looking for a mortgage
    While many Americans cut coupons or look for online promo codes to save cash on whatever items they're interested in, 47 percent of mortgage shoppers considered only one lender when looking for a mortgage, according to the CFPB. That number was lower for first-time homebuyers. The survey revealed 44.5 percent of first-time buyers seriously considered only one mortgage lender.

    The CFPB conducted the survey in 2014 on consumers getting a mortgage in 2013 and found visiting just three lenders could save a family thousands of dollars on a mortgage because they would have a better chance to secure a lower rate by shopping around. Landing a 4 percent rate compared to a 4.5 percent rate on a $200,000, 30-year fixed mortgage will save the average person $60 per month. Over a five-year span, that adds up to more than $3,500.

    Greg McBride, chief financial analyst for a financial institution, told CNBC the mortgage process isn't one that consumers often go through, which might be why they don't go after deals as hard as they normally do [2].

    "There is a tendency to latch onto the first knowledgeable individual and assume that they are acting solely in your best interest," McBride said, adding the more effort a consumer puts in, the better off their finances will be in the long run.

    The CFPB reported approximately 7 of 10 respondents heavily relied on their mortgage lender for information about their home loan. Meanwhile, 1 of 3 said they relied on home builders or real estate agents for the same info.

    Cordray warned potential homebuyers that what is best for a mortgage lender is not always what is best for the person purchasing the home, although he did say lenders and brokers can be valuable resources when looking at homes.

    How to weigh your options 
    The CFPB recommends talking to at least three lenders before settling on a mortgage loan because the money one can save is monumental. The CFPB specifically stated the money saved can be used for paying off debts faster, savings for an emergency, making home renovations, going on a vacation or saving for retirement.

    Cordray also stated that shopping around for a mortgage should not hurt a borrower's credit score. He stated credit checks from mortgage lenders over a short period of time are usually considered one inquiry and won't lower a borrower's credit score.

    "The effect on your credit will be the same no matter how many lenders you consult," he said.

    [1]. Nearly half of mortgage borrowers don't shop around when they buy a home

    [2]. Nearly half of home buyers don't shop for a mortgage

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