By Shally Venugopal, Founder, Myolo
In 2008, with the housing crisis in full swing, my fiancé and I bought a small condo not too far from downtown D.C., Though it was small, not in a fancy neighborhood, and a long walk from a real grocery store, to me it was mighty. And it was home.
I had moved to D.C. to work at an environmental nonprofit after working in financial services. The new job made me 5 times happier, but also paid me a fifth of my previous salary. So when a mortgage lender approved us, I thanked the heavens and didn’t think twice about it.
But less than a year later I realized that I had made, in the wise words of Gob Bluth, a “huge mistake”. I had spent all my time negotiating with the condo seller, but never thought twice to shop and negotiate with mortgage lenders.
Turns out I’m not the only one. According to the Consumer Financial Protection Bureau (CFPB) — a government consumer protection agency created in response to the housing/financial crisis — nearly 1/2 of all borrowers don’t shop around and 77% of borrowers apply to just one lender.
In fact, women head of households pay a 0.4% premium on their mortgage interest rate, largely because they don’t shop around (Cheng et al. 2011).
That’s almost $5,000 in extra interest payments in just 5 years on a $300K 30-year mortgage at current rates, not to mention lost principal contributions. If you’re a racial minority, those numbers can look even worse.
So how can you stop paying more to finance your homes?
Step 1: Do your shopping homework. Don’t rely on your agents’ or friends recommendations. Some real estate agents get kickbacks from lenders, which means you’re getting biased advice. And remember, advertised rates won’t always apply to your personal situation, so don’t just window shop.
Step 2: Apply to more than one lender. Research shows 3 is the magic number to keep your shopping time-efficient and still get a good deal. Remember, as long as you shop/apply within a 2 week period, you won’t get dinged for multiple mortgage-related credit inquiries (but don’t try getting a second mortgage, other loans or credit cards at the same time!).
Step 3: Ask questions and push back as necessary. Your loan officer or mortgage broker should be working for you, not against you. It’s no different than a bad date. If you’re not feeling it, just walk away.
Step 4: Compare terms and closing costs, not just rates. The loan with the lowest rate isn’t always the best loan, and the best loan isn’t the best loan for everyone. For example, if you aren’t planning to own a home for long, you might be better off taking a loan with a higher interest rate but lower upfront costs.
Step 5: Know and exercise your rights. Since the financial crisis, the CFPB has passed a whole slew of legislation meant to protect you and ensure lenders don’t surprise you with last-minute costs. Don’t let Uncle Sam’s work go in vain — learn more here.
Women are increasingly leading financial decisions for themselves and their family. But between work, life, family, finding a home, and moving, the idea of mortgage shopping might feel overwhelming.
That’s why I started Myolo, a mortgage marketplace that lets you use one mortgage application to apply to multiple, vetted lenders. But whether or not you use Myolo, remember that knowledge is power, so get educated and shop, shop, shop.
Shally Venugopal is the Founder of Myolo, a D.C.-based mortgage technology platform that helps people– including women and minorities– more effectively shop for their mortgage. Myolo is piloting its first round of mortgage applications in D.C. and would love to hear from anyone who is interested in buying or refinancing their dream home.