Buying a house may be one of the largest expenses in a lifetime. Considering the significant cost involved, you would certainly want to minimize the payment amount as much as possible. Comparing interest rates and fees from multiple mortgage lenders can help you find the best deal.
Is it wise to apply to multiple mortgage lenders? While comparing different interest rates can indeed help lower your payments, could it harm you to do so? The answer to this question is not entirely clear.
Without seeing other quotes, you won’t know if you are getting the best deal. Although there are limits to the profits mortgage companies can earn by law, even a half-point difference in interest rates could save you thousands of dollars.
Using a mortgage calculator to see how much money each rate could save you is essential.
Aside from varying interest rates, mortgage lenders also have different loan structures. You need to compare rates and closing costs to choose the option that best suits you.
If you have a longer loan term, opting for a lower interest rate rather than lower closing costs is wiser because in the long run, you will pay significantly more in interest than in closing costs. However, if you plan to hold the property for only a few years or refinance later, waiving closing costs might be a smart choice.
Only you understand your situation best. If multiple mortgage lenders are competing for your business, choose the one that aligns best with your goals.
According to the Consumer Financial Protection Bureau (CFPB) recommendations, it is wise to compare at least three lenders. This will provide you with an ideal combination of factors such as loan type, interest rates, and fees, enabling you to find the loan that best suits your needs.
Comparing multiple lenders economically benefits you. According to research by Zillow, applying to multiple lenders could help you save $600 to $1200 annually.
However, the ultimate amount you save depends on your financial circumstances, including your credit history, mortgage type, loan amount, and down payment.
Informing lenders that you are collecting quotes from other companies may give you an advantage. Knowing that multiple lenders are vying for your business can prompt them to be more proactive in tailoring loan options for you.
We are in an era of online mortgage brokers offering pre-qualification and pre-approval services. You can use these tools to find the best rates without formally applying.
Acquiring a home loan requires some homework. No matter how many lenders provide you with quotes, you need to take some basic steps to secure the best loan.
Firstly, research the current national mortgage rates. Zillow can assist you as they publish daily rates. However, the loan rate you receive is based on several qualifying factors, including your debt-to-income ratio, FICO credit score, and loan type.
Inquire with multiple lenders to see what rates they offer publicly. Understanding the market before starting the application process will aid you in decision-making.
Some lenders may charge a loan application fee. This fee could be negotiable or non-negotiable. It’s crucial to ask about this before applying.
While some lenders unconditionally waive application fees, others may waive them but increase the underwriting fee.
It’s essential to note that lenders may use different terms for fees. Some may refer to the application fee as a processing fee or origination fee. Be sure to inquire about the fee and if it can be waived.
By using pre-qualification or pre-approval, you can avoid application fees without formally applying. This allows for a basic assessment of your financial situation and credit to understand what loan terms you may qualify for.
With pre-approval in hand, you can shop for homes. Pre-qualification evaluations cannot give you home quotes.
Most importantly, you have already ventured into the loan realm. You can see what loan terms generally fit you.
Checking your credit can be a soft or hard inquiry. Pre-qualification evaluations generally involve a soft credit inquiry that does not affect your credit score.
Once you seriously apply for a loan, a hard credit inquiry will be made. Having too many hard inquiries within a short period may temporarily lower your credit score. Hard inquiries remain on your credit report for two years.
However, credit score models take into account rate shopping for mortgages. Given that you are obtaining a mortgage for one property, if your credit is checked multiple times within two weeks, all inquiries are treated as a single inquiry.
Therefore, do your homework before starting the application process so you can apply to different lenders simultaneously. When applying for a loan, ensure you do not pay multiple fees and avoid paying multiple assessment fees. Narrow your choices down before deciding—the lenders that fit your criteria.