March 2, 2020

There’s a Magic Number for Mortgage Quotes

How Many Quotes to Get and How to Save Yourself Thousands

If you’re about to score your dream home, figuring out a mortgage is the most stressful and often the most confusing part of the process. After all, you know you want quartz countertops, but do you know what the average current interest rate is? And did you know that not all mortgage quotes are created equal? There’s a lot to know about financing what may be the biggest purchase of your life, but putting in a few extra hours before you sign on the dotted line will pay off in the long run.

In a recent interview with Unison, Terrance Odean, professor at the Haas School of Business at UC Berkeley, recommended getting no fewer than four mortgage quotes from four different lenders before committing to any of them. We’ll go over why multiple quotes are better than one and how to compare mortgages apples-to-apples, so you can be sure you’re getting the best rate.

Four Reasons to Get Four Quotes
Really, the more quotes from different lenders you can get the better, but unless you have unlimited time to spend, four is a good number to shoot for. Here are a few reasons why it’ll pay to shop around before you settle down.

1) Getting a quote won’t ruin your credit score.
Every time your score gets checked with a “hard” credit pull, it takes a small hit. However, credit companies are smart enough to recognize multiple inquiries for the same type of mortgage in a specific timeframe, so it won’t impact your score as much as applying for, say, multiple credit cards within the same week. To get more granular about how quotes can affect your score, take a look at TransUnion’s handbook.

We recommend the 4x4 rule: four quotes in four days. That’s because quotes can expire and rates can fluctuate, so keeping your window of exploration tight helps give you a good feel for the best rate.

2) There are different types of loans.
Getting creative with your financing can mean you're taking on extra risk, i.e. with an adjustable rate, or by increasing your payment with PMI if you have less than 20% to put down. A good broker will offer and explain options like a fixed-rate loan, an interest-only loan, an adjustable-rate mortgage (ARM), or a jumbo loan. And even those have options like 30 or 15 years or splitting up one loan into two to get a better interest rate. The important thing to remember here is that brokers can offer different solutions depending on your situation, so do some research on your own and ask about different types of loans and how they’d work for you.

3) APR isn’t your interest rate.
Interest rates fluctuate depending on what’s happening to the country’s economy and how good your credit score is. However, the APR is a broader umbrella that includes interest rate and the costs of actually borrowing money from a specific lender, such as closing costs and broker fees. You’ll likely see a greater variation in APR from lender to lender than you will a variation in interest rate from lender to lender.

4) The power of negotiation.
In this situation, you can bargain hunt while you house hunt because you hold all the cards. Use all that bargaining power to your advantage. Play lenders against each other. Show one lender another quote and ask them to match or beat it. Ask for discounts on services or refunds after closing. What one company won’t do, another might, but you’ll never know unless you ask.

Getting a mortgage is a big step, and it’s important to feel comfortable with the mortgage payment you’ll be making each month. By seeking out more than one mortgage quote, you can feel confident about the rate you’re getting and not spend the next few decades wondering if you could have gotten a better deal.