Buying a house is probably the biggest purchase you’ll ever make. Because it’s such a big purchase, you want to keep the payment down to a minimum. One way people do this is by comparing rates and fees with multiple mortgage lenders.
But is this wise? Receiving various rates can help you keep costs down. But does applying to multiple mortgage lenders hurt you? There’s some gray area to that question.
Why Should You Apply to Multiple Mortgage Lenders
You won’t know if you have the best deal if you haven’t seen other offers. And although laws limit how much profit a mortgage company can make, even half a point could be thousands of dollars in savings.Lenders structure loans differently, in addition to different interest rates. Compare both rates and closing costs and choose the one that makes the most sense.
If you’re financing over a long period of time, it makes sense to choose a low interest rate over low or no closing costs because, in the long run, you’ll pay more in interest than the closing costs would have been. But if you’re only keeping the house for a few years or plan on refinancing it, eliminating closing costs may be a smart move.
Only you know your situation, and if you have multiple mortgage lenders vying for your business, you can choose the one that meets your goals.
How Many Lenders Should You Approach?
According to the Consumer Financial Protection Bureau (CFPB), comparing at least three lenders is prudent. This will give an ideal combination, such as:- loan type
- interest rate
- fees
Comparison shopping pays off financially, too. According to Freddie Mac Research, applying with multiple lenders will help you save between $600 to $1,200 a year.
But the savings ultimately depend on your financial situation. This includes:
- credit history
- type of mortgage
- loan amount
- down payment
Transparency with Multiple Mortgage Lenders
It can be advantageous to let mortgage lenders know that you are receiving competitor quotes. Knowing you have multiple lenders vying for your business will motivate lenders to be more aggressive when putting a package together for you.This is the day of online mortgage brokers with prequalification and preapproval. That means you have the tools to find the best interest rate without submitting a formal application.
Searching for Mortgage Quotes from Multiple Lenders
It takes work to find financing for a home. Regardless of how many lenders quote your mortgage, there are some basic steps you need to take to ensure you receive the best deal.Know the Current Mortgage Rates
Start with researching the current national mortgage rate. Freddie Mac can help. They publish the current rate daily.But the loan rate offered to you is dependent on qualifying factors. These include your:
- debt-to-income ratio
- FICO score
- type of mortgage
Are There Loan Application Fees
Some lenders charge a loan application fee. This may or may not be negotiable. It’s important to ask your loan officer before you apply.Some lenders will waive the application fee with no strings attached, while others will waive the application fee but increase the underwriting fee.
Be aware that every lender has a different name for fees. Depending on the mortgage company, some application fees are called processing or origination fees.
Always ask your lender what the fee is and if you can waive it.
Preapproved or Prequalified Status
Avoid application fees and applications by using preapprovals or prequalification. This is a basic assessment of your finances and credit. It will give you an idea of what you’ll qualify for.With a preapproval letter, you can make offers on houses. Prequalification’s do not help you in making offers.
The bottom line is that you‘ll have dipped your toe in the financing pool. You’ll be able to see what you generally qualify for.
Multiple Mortgage Applications and Credit Score
Pulling your credit could be soft or hard. Prequalifying for a loan is generally a soft credit check and doesn’t affect your credit score.A hard credit check happens once you are serious and applying for a loan. Too many hard credit checks within a short period can lower your score temporarily. The hard check remains on your credit report for two years.
But credit scoring models take mortgage rate shopping into account. That’s because you’re only going to secure one mortgage for one home. The rule is if you have hard checks on your credit within two weeks of each other, all the inquiries are considered one.
So, ensure you do your homework before starting the process, so you can apply to different lenders at one time.
Multiple Mortgage Applications May Be Beneficial
Ensure that you aren’t paying multiple fees to apply for a mortgage. You also want to avoid paying for multiple appraisals. Before you’re at the point, you should have narrowed it down to the lender you want. Ensure you vet a lender based on the items that fit your situation.The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
