Mortgage loan applicants: how many are necessary?

Applying to multiple mortgage lenders allows you to compare interest rates and fees to find the best deal. When negotiating with individual lenders, having multiple quotes on hand can provide leverage. However, applying to too many lenders may result in lower credit inquiry scores and may trigger a large number of unwelcome calls and solicitations.

There is no magic number of applications. Some borrowers choose two to three, while others use five to six quotes to make a decision.

Reasons for applying for multiple lenders

If you don’t compare it with other offers, it’s difficult to know that you got the best price. Because the law restricts mortgage companies’ compensation methods, the difference in interest rates and fees between companies is smaller than in the past—for example, in the 2000s. However, subtle differences still exist, and what now looks like small interest rate savings may translate into large sums of 15- or 30-year mortgages. Use the mortgage calculator to compare the impact of different interest rates on your monthly payments.

In addition, different lenders construct loans in different ways in terms of interest rates and transaction costs, and there is an inverse relationship between the two. Some lenders raise closing costs to lower your interest rate, while others advertise low closing costs or offer higher interest rates in exchange for no closing costs.

Key points

  • Applying for multiple lenders allows the borrower to compete with one lender for better interest rates or transactions.
  • Applying to multiple lenders allows you to compare interest rates and fees, but due to multiple credit inquiries, it may affect your credit report and scoring.
  • If you plan to hold a mortgage for a long time, it is best to choose a lower interest rate and a higher transfer cost. If you plan to refinance or pay off the loan in a few years, it is best to keep the transfer costs low.
  • There is no optimal number of applications, but too few applications may cause you to miss the best deals, while too many applications may lower your credit score and make you receive unnecessary calls.

Viewing multiple Good Faith Estimates (GFE) side by side allows you to compare rates and transaction cost options to choose the one that best suits your situation. When you plan to keep your mortgage for many years, it usually makes sense to pay a higher transfer cost at a lower interest rate, because your interest rate savings will eventually exceed the higher transfer cost.

If you plan to sell or refinance in a few years, it is best to keep the transaction costs as low as possible, because you have not paid off the mortgage long enough to accumulate interest.

When you have multiple offers, you can even fight one lender against another. Suppose that lender A provides you with a 4% interest rate and a settlement cost of $2,000. Then lender B appears and provides 3.875% at the same closing cost. You can offer lender B’s offer to lender A and try to negotiate a better deal. Then you can bring back lender A’s new offer back to lender B and do the same thing, and so on.

If you want to compare lenders with each other, try to obtain an official loan estimate from each lender, which details all the terms, interest rates, fees, and points for each loan. If possible, try to compare loans with the same points. It is well known that lenders will mislead borrowers by telling them where to put fees and points in order to make their transactions look better than those of competitors.

Disadvantages of applying for multiple lenders

For the lender to approve your mortgage application and make an offer, it must review your credit report. To this end, the lender conducts credit inquiries to the three major credit bureaus.

Credit analysts point out that too many queries will reduce your digital credit score. Especially difficult queries will be kept in your report for two years. Most scoring models, such as FICO and VantageScore, will query your credit account. These models are closely guarded, so few people know the exact extent of the query. Fair Isaac Corporation (FICO), the creator of the FICO model, stated that multiple mortgage inquiries that occur within 30 days will not affect your FICO score.

In the current hot real estate market, as buyers obtain pre-approval, submit offers, and close their homes in months instead of 30 days, borrowers are likely to have to conduct multiple rounds of credit checks. Although your lender may exclude multiple checks from the mortgage company within a few months of your home purchase, this may reduce your credit score for the next two years.

Another evil secret that many borrowers don’t know is that credit bureaus earn extra income by selling your information to mortgage lenders you haven’t applied for. This is called a trigger clue in industry jargon. Submitting a mortgage loan application will trigger a credit withdrawal, and the mortgage company will pay the credit bureau a list of people whose credit has been recently withdrawn by the mortgage company.

Knowing that these people are seeking mortgage loans, the sales staff of these companies call the list and promote their services. The more lenders you apply for, the more likely your information will be sold as a trigger, which may lead to successive sales calls.

How many mortgage pre-approval letters should I receive?

All you need is a mortgage pre-approval letter. If your recent financial situation has changed, such as a salary increase or inheritance, which has improved your income, credit score, or down payment, it may be worth getting a newer and stronger pre-approval letter.

How many times can you take a mortgage?

There is no practical limit to the number of times you can withdraw credit for a mortgage. Most borrowers’ credit is approved in advance and pulled again at the end to make sure it doesn’t fall. Sometimes, if a long time has passed since your pre-approval, or if they are verifying that you have completed things such as paying off debts, or if the dispute has been resolved, the lender may withdraw again during the underwriting process Credit.

Do multiple credit inquiries from the same lender count as one?

Under normal circumstances, multiple inquiries within 30 days are counted as one inquiry. If your lender withdraws your credit multiple times beyond the 30-day period, it may treat your credit report as a hard query.

Can I lock in the mortgage interest rates of multiple lenders?

Technically, yes, but it is not a very polite thing, you may have to pay for each lender’s credit check and evaluation fees, etc., depending on their policies. Initiating and underwriting loans requires a lot of time and care from many professionals. Locking the interest rate with the lender means that you are accepting a loan, and this is how they get paid. If you cancel at the last minute, they are wasting time, and the company or lender may not be willing to work with you in the future.

Can I buy the price without asking hard questions?

Yes. Many online lenders, local banks, and mortgage brokers transparently list their interest rate charts on their websites. If you prefer to call, please clarify on the phone that you only agree to the soft credit check. Not everyone you talk to is willing to offer you a price over the phone, but many people are willing.

Bottom line

Too few apps may cause you to miss the best price, and too many apps may lower your credit score and besiege you with unpopular calls. Unfortunately, none of the Goldilocks numbers represent the correct number of mortgage lenders you should apply for. Some borrowers only apply for two, confident that one of them can provide the ideal loan, while others want to hear the opinions of five or six banks before making a decision.

Perhaps the best way to obtain a mortgage is to conduct market research first to understand what constitutes a large number of loans in the current lending environment. Next, contact two or three lenders and challenge them to match or beat the terms you set. If you have reviewed their offer and still think there is a better deal, please apply to other lenders as needed, but be aware of the established disadvantages of doing so.

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