Many homebuyers pick mortgage lender before signing contract: Fannie

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Before signing a home purchase contract, the vast majority of potential homebuyers already selected their mortgage lender in order to compete with investors, a Fannie Mae survey found.

Competition for limited inventory is driving this shift. The median time a home remains on the market from listing through contract was 35 days in June, according to Redfin.

Just under three-quarters of respondents said they choose their mortgage lender before they signed a contract to purchase a house. "The presence of cash offers has made it more pressing for people to have their mortgage in-hand when they make their offer to be able to compete with cash offers," said Doug Duncan, Fannie Mae's chief economist.

Of those that got multiple quotes, 72% selected their lender before going to contract, with 75% of first-time buyers doing so, along with 70% of repeat buyers.

"The simple statement that competition helps consumers is only true if consumers activate the competition. And the only way you can activate the competition is to talk to more than one lender and let them know you're talking to more than one lender; then they know they've got to compete," Duncan said.

Still, a significant number of buyers don't shop for rates at all.

The results showed that 38% of buyers sought a single quote from a mortgage lender, compared with a 2014 survey that found 36% said the same thing. There were three quotes received by 28% of those surveyed, while 21% received two — the median number of quotes received.

Among the big changes to the mortgage market since then was the introduction of the Loan Disclosure document by the Consumer Financial Protection Bureau, whose goal was to bet consumers to comparison shop their mortgage loans.

Of those recent homebuyers who obtained multiple quotes, 39% were between 18 and 34, with 28% between 35 and 44 and 35% over 45 years old.

Those who did shop typically ended up with a better deal on their house. Many people are so concerned about even qualifying for a loan, that if they get one offer, those borrowers don't proceed any further, Duncan said.

Lower-income borrowers are less likely to shop and when they "try to negotiate with just that lender and don't get as much traction with it," Duncan said. Those borrowers might be less confident in their ability to get a loan and not realize that "since one lender has actually qualified them, there are more that will do it, they should actually act on that."

Not all higher income households shop either, more likely due to having a relationship with their lender for other products and services and are subsequently getting a good deal as a result.

The survey only covered mortgage shopping and not any other services such as title insurance that borrowers can make price comparisons. It also only surveyed home buyers and not those who recently refinanced.

Fannie Mae did not quantify how much money a borrower could save by shopping interest rates, points and fees. However, homebuyers might have received median lifetime savings of $47,703 in interest on a $300,000, 30-year fixed-rate mortgage by comparison shopping during the week of July 14, according to LendingTree.

Repeat buyers were slightly more likely than a first-timer to only get a single quote, 41% to 34%, and that might be because of their experience having gone through the process before and are more confident about whether they got a good deal or not, Duncan said. Plus their mortgage payment history gives them better bargaining power than someone who never owned a home before.

Just under 30% of the first-time buyers wished they got more than one quote, but just 19% of the repeat buyers responded that way. By income, 25% of those earning under $50,000 and 24% of those between $50,000 and $100,000 wish they got more than one quote; that was true for 17% of those earnings over $100,000.

Of the consumers that got only one quote, 35% said they were comfortable with the lender they spoke with, while 28% said they were satisfied with the single offer they received. Another 18% said they let their mortgage broker do the shopping for them, while 10% responded that shopping interest rates was too much of a hassle for them.

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Purchase Housing inventory Mortgage rates Marketing First time home buyers Fannie Mae
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