How many lenders should you apply to for a mortgage?
Can you apply for a mortgage with more than one lender?
Your home is one of the biggest financial investments you will ever have. As a homeowner, you could have a mortgage loan for many years to come, possibly even decades.
But while it makes sense to shop around for the best possible deal, is it okay to apply for a mortgage with more than one lender at the same time?
The short answer is yes. You can apply with as many lenders as you want; there’s no penalty for applying more than once. And comparison shopping is proven to reduce homeowners mortgage costs by hundreds — even thousands — of dollars.
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Advantages of applying with multiple mortgage lenders
Fact: Nearly one in ten home purchase applications are denied. And 13% of all refinance applications are denied.
If so many mortgage applications are turned down, a little “insurance” could translate into a lot of peace of mind. This is especially true if you have less-than-perfect credit.
Another reason to shop around is that mortgage programs, closing costs, interest rates and service can vary significantly from one lender to the next. Obtaining more than one loan approval allows you to test the waters with lenders and compare Loan Estimates.
And that’s not empty advice. This strategy is proven to work.
The Consumer Financial Protection Bureau (CFPB) says that if just 20% of homebuyers would get an extra quote, they would collectively save $4 billion a year due to increased competition between mortgage lenders.
Should I tell my lender I’m applying with more than one company?
It doesn’t hurt to tell lenders that you are shopping around. In fact, you should tell them. Multiple applications shown to increase competition between lenders.
Mortgage competition is alive and well in our current economy. If you have a good credit history, lenders may be more likely to compete for your business.
Informing lenders that you’re shopping and comparing will typically result in the lender being more inclined to put their best foot forward from the very beginning.
Plus, in the era of online mortgage brokers, prequalification, and preapproval — borrowers today have more tools than ever before to get the best rate, without having to necessarily submit a formal mortgage application.
How many different lenders should I apply to for a mortgage?
While the number of different lenders that borrowers should apply with depends on an individual’s home buying process, research conducted by Freddie Mac provides borrowers with some guidance.
Freddie Mac shows that homebuyers who submitted loan applications multiple times reduced their chances of unfavorably high mortgage rates by nearly 5%. While homebuyers who only conducted one search, routinely paid higher mortgage rates than other borrowers.
Furthermore, homebuyers who searched at least five times got lower mortgage rates than borrowers who compared only three quotes.
So aim to apply with at least three mortgage lenders. But if you can, get quotes from five or more. The more lenders you apply with, the better your chances of finding an ultra-low rate.
How much a homebuyer can save with multiple mortgage quotes
The savings from getting quotes from different lenders will vary depending on a borrower’s financial situation, including credit history, type of mortgage, loan amount, and down payment.
However, the same Freddie Mac study expects the average saving from only one additional mortgage quote to be approximately $1,435.
That figure soars to $2,914 when homebuyers solicit five rate quotes.
These savings are confirmed by a CFPB study that found, “failing to comparison shop for a mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.”
The savings may differ from one borrower to the next, but the findings are clear: Buyers can get a lower interest rate on their home loan by working with multiple lenders.
How to get mortgage quotes from multiple lenders
Research current mortgage rates
Researching mortgage rates, fees, and lenders is an important step in your real estate journey.
While your loan terms and rate will be dependent on qualifying factors — including your debt-to-income ratio, FICO score, and the type of mortgage — understanding the lending landscape before venturing into the home buying process will help you make more informed decisions.
Find out about fees
Many mortgage lenders will charge a loan application fee that may or may not be negotiable. These fees can add up quickly, so it’s important to negotiate with your loan officer.
Some lenders may be willing to waive a loan application fee entirely, or they may waive the application fee but increase the underwriting fee.
Mortgage companies each have their own names for in-house fees. Instead of an application fee, your loan estimate may show an origination fee or a processing fee. Be sure to seek clarification from your loan officer.
Getting preapproval or prequalification
Borrowers who are fee-averse have options other than a formal loan application — they can get preapproved or prequalified for a home loan, generally at no cost.
Prequalification can happen earlier in the home buying process. When you’re prequalified for a mortgage, you’re getting a general idea of how much you can borrow, based on a modest amount of information about your financial situation, including a credit check.
Getting preapproved, on the other hand, is a more rigorous process that examines your finances and evaluates your creditworthiness based on bank statements, pay stubs, credit report, and other considerations.
Once you get mortgage preapproval, the lender will issue you a preapproval letter that confirms how much they are willing to lend. Preapproval letters are usually valid for 90 days.
Comparing multiple lenders
After you feel comfortable that you’ve found your lender, bank, credit union or mortgage broker, pull the trigger on the appraisal and lock in the rate.
Having your primary lender in place, you now have more concrete terms, rates, fees and service to which you can now compare with other lenders.
Again, don’t be shy about telling lenders that you’re working with other institutions.
Not only can it be helpful to provide full disclosure to the lenders with whom you’re shopping, it is more than likely to come up regardless.
For example, credit inquiries from other lenders will come up when a lender pulls your credit report. Not only will the inquiries show up, you may need to explain them.
Applying for an FHA loan with multiple lenders
If you are applying for an FHA mortgage loan, something that happens early on in the process is that an FHA case number is assigned.
FHA case numbers go into a nationwide database known as FHA Connection. Most lenders will be less than thrilled to find out through the FHA Connection that you’re “double-apping.”
No one can fault you for wanting to get the best rate. They may, however, get their feelings hurt if they feel as though you’re trying to be sneaky.
Being forthright about your intentions lets all parties know your objectives, and you’ll be more likely to get a better deal.
Disadvantages of applying with multiple mortgage lenders
Will multiple applications impact my credit score?
In previous years, having multiple mortgage applications meant multiple credit inquiries. Credit inquiries occur when a lender pulls your credit.
For most people, a mortgage credit inquiry is known as a “hard pull,” “hard inquiry,” or a “credit pull” on your credit report. The three major credit bureaus — Transunion, Experian, and Equifax — all treat credit pulls as a negative credit factor and may lower your FICO score by three to five points.
Multiple inquiries would be potentially harmful to homebuyers due to the impact on credit scores. This concern kept consumers from shopping around to more than one lender.
Today, you can apply with as many lenders as you’d like over a 2-week period. All those inquiries only count as one credit pull.
This rule went into effect so that consumers could perform due diligence when making major purchases, thus ensuring they were getting a good deal.
Don’t let multiple lenders lead to multiple application fees
When you apply for a mortgage, working with two or more lenders at once can help you find the best deal.
However, what you don’t want is to end up paying multiple fees for multiple applications.
For example, if you get far enough into the process of a mortgage application, you will need to pay for an appraisal.
While having one appraisal is necessary, paying for multiple appraisals isn’t the best use of your money.
Instead, find one lender with whom you feel confident. Vet them by the things that are most important to you.
For some homeowners, it’s all about the closing costs and the interest rate. For others, closing costs and interest rates may be important, but paying a $100/day penalty to the builder because your lender couldn’t close on time can end up being much costlier than an additional 0.125% on the interest rate.
In other words, service and being able to close on time, can prove to be just as important if not more than a slightly higher interest rate.
Know what’s important to you so that you can shop and compare accordingly.
You may get flooded with solicitations from mortgage companies
Mortgage brokers, lenders, and online fintech platforms may sell your personal information to other financial institutions, which can result in an overwhelming amount of unsolicited phone calls and emails after submitting a single loan application.
While there is not much borrowers can do once they agree to a lender’s terms and conditions, limiting the number of inquiries may also limit the amount of subsequent spam.
Consumers typically don’t think twice about shopping around for cars, or even basic household items. Don’t be afraid to apply this same logic when it comes to shopping for a mortgage loan.
Applying for more than one mortgage at once allows you to compare costs, rates, program options and even “test-drive” lenders prior to committing to just one lender.
At the link below, get connected with multiple loan experts and start the shopping process today.