Applying to Mortgage Lenders: How Many Are Necessary?

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Applying to Mortgage Lenders: How Many Are Necessary?

When you apply for a mortgage with a number of different lenders, you will have the opportunity to compare interest rates and other expenses in order to get the best deal. You will have more bargaining power with some lenders if you provide them with many proposals to choose from. However, submitting your information to an excessive number of lenders may result in credit inquiries, which may have a negative impact on your score, as well as a deluge of unwanted calls and other forms of solicitation.

There is no such thing as a magical threshold for the total number of applications. While some debtors choose two to three proposals, others select anywhere from five to six different options.

Reasons to Apply to Multiple Lenders

It is difficult to establish if you are obtaining the best deal unless you compare it to the many offers that are available. As a result of laws that regulate how mortgage firms are rewarded, there is less variance in rates and fees from company to company than there was in the past, for example during the 2000s. This is due to the fact that mortgage businesses are subject to regulations. Nevertheless, there have been some changes, and what may seem to be insignificant reductions in interest rates right now might add up to a significant sum of money over the course of a 15- or 30-year mortgage. Make use of a mortgage calculator to see how changes in interest rates will impact your regular payment amount.

In addition, different lenders structure loans in different ways with regard to interest rates and closing costs, both of which have an inverse relationship to one another. While some lenders would increase your closing expenses in order to lower your interest rate, others will offer you lower or even no closing costs in exchange for higher interest rates.

Key Takeaways

  • Conducting market research to identify what constitutes a great deal in today’s climate of lending is the first step in securing a mortgage and is likely the one that will prove to be the least difficult. Calling two or three different lenders and challenging them to meet or exceed your terms is the next step. If, after analyzing their offers, you believe there may be a better deal available elsewhere, you may submit an application with as many lenders as necessary; but, you should be aware of the acknowledged drawbacks associated with doing so.
  • Conducting market research to identify what constitutes a great deal in today’s climate of lending is the first step in securing a mortgage and is likely the one that will prove to be the least difficult. Calling two or three different lenders and challenging them to meet or exceed your terms is the next step. If, after analyzing their offers, you believe there may be a better deal available elsewhere, you may submit an application with as many lenders as necessary; but, you should be aware of the acknowledged drawbacks associated with doing so.
  • Conducting market research to identify what constitutes a great deal in today’s climate of lending is the first step in securing a mortgage and is likely the one that will prove to be the least difficult. Calling two or three different lenders and challenging them to meet or exceed your terms is the next step. If, after analyzing their offers, you believe there may be a better deal available elsewhere, you may submit an application with as many lenders as necessary; but, you should be aware of the acknowledged drawbacks associated with doing so.
  • Conducting market research to identify what constitutes a great deal in today’s climate of lending is the first step in securing a mortgage and is likely the one that will prove to be the least difficult. Calling two or three different lenders and challenging them to meet or exceed your terms is the next step. If, after analyzing their offers, you believe there may be a better deal available elsewhere, you may submit an application with as many lenders as necessary; but, you should be aware of the acknowledged drawbacks associated with doing so.
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When you do side-by-side comparisons of many good faith estimates (GFEs), you are able to analyze various rate and closing-cost scenarios to decide which one is most suitable for your specific situation. If you want to keep the mortgage for a considerable amount of time, it makes financial sense to pay higher closing costs in exchange for a lower interest rate since the money you save on the interest rate will eventually balance the money you spend on closing costs.

If you plan on selling your home or refinancing it within the next few years, you should keep the closing costs as low as possible since you won’t be making payments on the mortgage for a period of time that will allow interest rate savings to accrue.

When you have a lot of different options, you may play one lender off against another if you want to. Let’s say lender A offers you a loan with an interest rate of 4% and a closing cost of $2,000. The next lender, lender B, offers 3.875% interest with the same amount required for closing costs. You might try to negotiate a better deal with Lender A by presenting them with the offer that was made by Lender B. After then, you have the option of accepting the revised offer made by lender A and repeating the process with lender B, and so on.

When you are evaluating several lenders, you should make an effort to get an official loan estimate from each of them. This estimate should include all of the terms, rates, fees, and points associated with each loan. Compare different loans that have the same attributes whenever it is possible to do so. It is not unheard of for lenders to intentionally mislead borrowers by strategically placing fees and points in order to make their contract seem to be superior to that of a rival.

Drawbacks of Applying to Multiple Lenders

When considering whether or not to approve your application for a mortgage and give you an offer, the lender will review your credit history. In order to do this, the lender will check the borrower’s credit history with the three major credit reporting agencies.

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Researchers who study credit say that a high number of credit inquiries might have a negative impact on a person’s numerical credit score. Specifically, difficult queries will stay on your report for a length of time equal to two years. The vast majority of credit scoring algorithms, including FICO and VantageScore, perform queries on credit accounts. Very few individuals are aware of how significant searches are since these models are maintained very up to date. Multiple inquiries about mortgages made within a span of thirty days of one another have no impact on your FICO score, as stated by Fair Isaac Corporation (FICO), the company that developed the FICO model. 12

Borrowers are likely to be subjected to many rounds of credit checks in today’s competitive housing market. This is because buyers are being pre-approved, making bids, and closing on houses over the course of several months rather than 30 days. Even if your lender may return many checks from different mortgage providers spread out over a period of several months for the purchase of your house, this may have a negative impact on your credit score for the following two years. 2

The fact that credit bureaus make money by selling your personal information to mortgage lenders for whom you have not applied is another dirty little secret that the vast majority of customers are completely oblivious to. In the business world, this kind of lead is known as a trigger lead. The act of making an application for a mortgage will result in a credit check being performed, and mortgage firms will pay credit bureaus for a list of individuals whose credit was most recently checked by mortgage companies. 3

Because the salespeople of these companies are aware that these clients are seeking for mortgages, they make contact with them and offer their services. The more financial institutions to whom you submit an application, the greater the likelihood that your personal information may be sold as a trigger lead, which will result in an overwhelming number of sales calls.

How Many Mortgage Pre-Approval Letters Should I Get?

You simply need one mortgage pre-approval letter. If you have recently experienced a change in your financial circumstances, such as a raise or an inheritance, that increases your income, credit score, or the amount of down payment you can afford, it may be useful to receive a new pre-approval letter that is stronger than the one you previously had.

How Many Times Can You Pull Credit for a Mortgage?

There is no hard and fast rule dictating how many times you are allowed to take out a home loan for additional funding. The majority of borrowers have their credit tested both before and after closing to verify that it has not worsened since the pre-approval stage. During the screening process, lenders might pull your credit report again if a significant amount of time has passed since your pre-approval, if they are verifying that you completed something, such as paying off a debt, or if they are determining whether or not a dispute between you and another party has been resolved. 4

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Do Multiple Credit Inquiries From the Same Lender Count as One?

In general, several inquiries that are made within a 30-day period are handled as a single inquiry. There is a possibility that your credit report may show a “hard inquiry” label if your lender checks your credit more than once during a period of 30 days. 1

Can I Lock Mortgage Rates With Multiple Lenders?

In a strict sense, the answer is yes; nevertheless, it is not a very pleasant thing to do, and depending on the requirements of the lender, you can be responsible for expenses such as credit check fees and appraisal costs. A substantial amount of time and attention from a team of committed professionals is required in order to process a loan. When you lock in your interest rate with a lender, it shows that you have the intention of completing the loan, which is how the lender gets paid. If you wait until the last minute to cancel, you are wasting their time, and the company or lender you were supposed to work with may be unlikely to do business with you in the future.

Can I Shop for Rates Without a Hard Inquiry?

Yes. On their own websites, the majority of online lenders, traditional banks, and mortgage brokers provide rate charts that are easy to understand. If you decide to shop around for financing, you should make it quite clear that you are only willing to consent to a light credit check. Many of the people you speak to will be willing to provide you price information over the phone, but not everyone will be willing to do so.

The Bottom Line

If you submit an insufficient number of applications, you run the risk of missing out on the best deal, while submitting an excessive number of applications might hurt your credit score and overwhelm you with unwanted calls. Sadly, there is no such thing as a number that fits just right when it comes to the number of mortgage lenders to whom you should apply. Some borrowers apply for loans with just two financial institutions, certain that any one of them would provide the most favorable terms, while other borrowers prefer to hear back from five or six institutions before making their choice.

Conducting market research to identify what constitutes a great deal in today’s climate of lending is the first step in securing a mortgage and is likely the one that will prove to be the least difficult. Calling two or three different lenders and challenging them to meet or exceed your terms is the next step. If, after analyzing their offers, you believe there may be a better deal available elsewhere, you may submit an application with as many lenders as necessary; but, you should be aware of the acknowledged drawbacks associated with doing so.

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