The easy way to shop for a mortgage is to compare interest rates or search for the lowest monthly payments.
But that's not the best way, and an awful lot of homeowners are paying more for a mortgage than they should be because it's hard to directly compare mortgage offers, says Steve Deggendorf, Fannie Mae's director of economic and strategic research.
Seeking to add to the existing body of research on the topic of mortgage shopping and behavioral science, Fannie Mae researchers in the spring interviewed 3,000 consumers, 70 percent of whom either owned their homes outright or had mortgages.
After studying the results, Deggendorf decided what's really needed in the marketplace is a consumer-friendly comparison shopping site for mortgages, much like those that exist for virtually everything else that consumers buy, whether it's electronics, travel or automobiles.
"This is a very complex process that needs to become simpler," he said. "The process is not transparent at all. There are products out there, but they don't do a good job."
While most borrowers find the home loan process confusing, filled with unfamiliar terms and complex calculations, different groups of consumers tend to approach it differently. Fannie Mae found that lower-income consumers are more apt to select their lender based on recommendations from mortgage brokers or real estate agents. They also don't use online search or mobile devices to help them shop for a mortgage and they don't use specific tools to help them estimate mortgage costs.
Lower-income consumers also are much more likely to obtain only one mortgage quote. About 30 percent said a mortgage broker's recommendation or a real estate agent's referral would be a major factor in their choice of a lender, compared with less than 20 percent of high-income individuals who said it would play a role in their decision-making.
Meanwhile, more than 3 out of 4 higher-income consumers said competitive offers would be a major influence in how they choose a mortgage. As a result, more higher-income individuals say they weren't surprised at the closing table, and paid what they expected for the loan.
In Fannie Mae's survey, lower-income borrowers were defined as having total annual income of less than $50,000. Middle-income borrowers had $50,000 to $100,000 in annual income and high-income borrowers had incomes of more than $100,000.
The results are troubling to researchers, given that previous research has suggested that as with other products, informed consumers who shop around are better able to secure the best deals. One study suggested that borrowers who obtained multiple mortgage quotes could save at least $1,000 in closing costs.
Deggendorf guesses there might be regulatory issues holding back the development of comparison-shopping products, but he believes consumers could benefit from efforts to bring more apples-to-apples comparison tools to mortgage shopping. He'd also like it to extend beyond the dollars and cents to compare the risks inherent in certain types of mortgages. As the housing market stabilizes and 30-year, fixed-rate mortgages will lose their grip on the marketplace, consumers will consider other products.
Sites might even let consumers compare the experience between providers, like seeing how many days, on average, one company took to close a loan compared with another.
"It's an opportunity for some of our more savvy tech providers," Deggendorf said. "If you're getting a mortgage and you're paying a lot of upfront fees and only holding it for a short time, that's not a good thing. You really have to look at the whole picture. There are people shopping on rate and people shopping on payment, and it really is more complicated."
Four bedrooms and two baths: Coldwell Banker Real Estate is out with its annual look at average home listing prices around the country and how much a four-bedroom, two-bath home costs in various parts of the country. It's probably not much of a surprise, but the Chicago area is a relative bargain. Average prices range from $81,107 in Park Forest to $757,965 in Winnetka. That compares with the most expensive average list price, of slightly more than $1.7 million, in Los Altos, Calif.