Buying a House? This Overlooked Step Could Save You $1,200 a Year
You may be missing out on an easy way to save on your monthly mortgage payments — and make your next home purchase more affordable.
It turns out that most homebuyers skip an important step when applying for a home loan: shopping around. Research has shown that borrowers who apply for a home loan from at least four lenders save $1,200 or more per year. Yet, according to a Zillow report published last week, 7 out of 10 prospective homeowners don't shop around for a better rate, opting instead to apply for a loan with a single lender.
Whether it's because the loan application process seems complicated, borrowers have confidence in the first offer they receive or they believe that all lenders offer the same rates, the decision to only apply with a single lender "can be a missed opportunity that costs buyers tens of thousands of dollars over the life of the loan," as Zillow's senior economist Kara Ng wrote in the report.
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For example, a 30-year, $360,000 loan at Freddie Mac's current rate of 6.24% would have a monthly payment of about $2,345. The payment on the same loan at a half-point lower rate would be about $100 lower, representing annual savings of about $1,100.
Those savings can multiply in markets where home values are more expensive, such as Seattle or San Jose, California.
At the same time, a lower rate allows a borrower to qualify for a larger loan amount, increasing the number of homes a prospective buyer can afford and, therefore, the number of buying options. Depending on the market, securing half-point interest-rate reduction could result in hundreds more homes that fall within a buyer's budget.
Aside from shopping for the best interest rates, prospective buyers will have a better chance of finding their dream home in the new year. Market conditions are shifting in favor of buyers.
Mortgage rates have been on a downward trend since mid-July. These lower rates have already improved affordability for some buyers who were on the sidelines. This trend is likely to continue into next year, as housing experts forecast that mortgage rates will remain in the current low-6% range.
"This slight improvement in affordability actually unlocks some pent-up demand, especially for households who didn't get to [buy] in 2025," Ng says.
Another factor that will help improve buying conditions is slowing home price growth, which Ng says she expects to rise by about 1% next year. Those price gains are expected to be offset by wage growth, which is forecast to increase by 3.5%.
More disposable income, combined with lower monthly payments, is expected to make a home purchase more accessible to a wider segment of buyers.
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