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It’s hard to know whether you are getting the best deal if you’re not shopping around for your mortgage.
When you compare and have multiple offers under your belt, you can potentially negotiate lower rates. In short: Shopping for multiple mortgage lenders helps find you the best deal on your mortgage.
But don’t go out there and call up too many lenders, as it can ding your credit. You also leave yourself open to solicitors making unwanted phone calls. So what is the right answer when it comes to shopping for multiple mortgage lenders? How many should you try? Here’s everything you need to know about how many mortgage lenders you should apply to when buying a home.
Should You Apply to Multiple Lenders?
No one would blame you for wanting to keep it simple and applying for only one mortgage at one lender. But applying for multiple lenders can have some real benefits: Saving you lots of money and making sure you end up with the right fit. You just have to do it right.
A study by Freddie Mac in 2018 shows borrowers who didn’t shop around paid more when compared to those that did. According to the study, for a $250,000 mortgage, a homebuyer who received one extra quote saved an average of $1,435 and borrowers who got at least five quotes stood to save the most over the life of the loan.
How to Apply to Multiple Lenders
Before you even start looking for lenders, you’ll want to figure out what type of mortgage is right for you. There are many factors that go into choosing the right type of mortgage.
How long do you plan to live there? What is your future earning potential? These types of questions can help you decide which mortgage is right for you.
For some buyers, a conventional fixed rate mortgage makes the most sense, as it’s the most common type of mortgage. Conventional loans have strict lending requirements and lower fees. For others, a government-issued loan like an FHA or VA loan might be a better fit. Either way, not all lenders offer all types of loans, so decide on your loan type first.
Once you know what you’re looking for, decide who you want to reach out to. There are digital lenders, as well as big banks and local credit unions. As you’re looking around, don’t just look for the best rate; also consider application or closing costs, and how quickly a lender can close.
“The rate is really just one piece of the puzzle,” says Lucy Randall, director of sales and operations at Better.com, a digital mortgage lender.
Experts agree it’s better consulting with friends, family, financial advisors, or a realtor on a good company to work with. Many times, those are the best referral sources. I would also recommend your bank or credit union as a place to start.”
There is no sweet spot when shopping for lenders but a good rule of thumb is finding two or three different quotes. Doing this will save you money on the life of your mortgage.
With each lender you choose to work with, you’ll want to start by having a qualifying conversation, Randall said. That means walking through your financial picture with them to make sure they can give you the type of loan you’re seeking.
If all of that checks out, go ahead and request a “pre-approval letter,” which is a document saying the lender is willing to lend you money. That’s when the lender will pull your credit and qualify you for the loan, which gives you a ticket to start seriously shopping for homes.
Pros and Cons of Multiple Lenders
Here are the pros and cons of applying to multiple lenders:
You’ll get the best deal.
Different lenders might be willing to lend you different amounts of money at different interest rates. Let’s say the first lender wants to offer you a 3% interest rate, while the other lender wants to offer you a 3.25% interest rate. Each one will look at your financial situation differently, and make you an offer accordingly.
By seeking a few different lenders, you can understand the range of home-buying power that you have.
“A lot of people find out they can actually afford a higher-priced home than they thought, especially with rates being so good,” Randall said.
Pit one company against the other for a better rate.
When you shop around, it gives you leverage. Every type of mortgage and lender will have slightly different financial terms. Rates will vary, and so will closing costs or commission fees. You can get a lower interest rate from one company and show it to another company in an effort to bring the rates down. Shopping around at multiple lenders gives you the best chance at keeping costs to a minimum.
“Some lenders can be really expensive rate-wise, but their closing costs might be lower,” Randall said. “It’s really good to get a sense of price and the way that a bunch of different companies price.”
You’ll get to choose the right lender relationship for you.
Different loan officers have different tones, and one mortgage lender could offer different benefits than the other. “Each company has different things that they prioritize,” Randall says. For example, some lenders might be known for a speedy closing, while others might be more willing to walk first-time buyers through a complicated process.
“It’s helpful to get a sense of the way that different loan officers treat you. At the end of the day this is a really stressful process, so you want to be working with somebody or a company that aligns with the way you like to work,” Randall said.
Here is more information on different mortgage lender reviews.
Applying too many times can hurt your credit score.
Every time you apply for loan approval, a lender is going to check your credit. Some of these amount to a “soft pull,” which doesn’t hurt your credit score, but some lenders use a “hard pull” that’s more likely to have a negative impact.
One way to avoid getting dinged too much is to make all of your inquiries during a 30-day period, which will limit the hit to your credit score. If you do get dinged, keep in mind that it’s only temporary and your score would come back up.
You could get overwhelmed with calls.
Many of the online mortgage platforms will take in your personal information, like your phone number, and share it with multiple lenders. That means you might receive lots of unsolicited calls after filling out just one application.
You could make the process more complicated than it needs to be.
While there are definite benefits to having options, Randall warned that seeking too many opinions can hurt more than it helps.
“You don’t want to have too many cooks in the kitchen,” Randall said. If you end up with too many choices, you might feel paralyzed by the decision.
One way to help navigate loan comparison is to use a mortgage calculator. A calculator will show you how much total interest you actually pay over the life of the loan.