How Many Mortgage Lenders Should I Apply To?

How many lenders should I apply to for a mortgage?

It’s best to compare at least three mortgage lenders, according to the Consumer Financial Protection Bureau (CFPB). This can help you find the best combination of loan type, interest rate and fees. It may also allow you to negotiate with a lender if you have a lower offer from a competitor.

Bear in mind, you’ll shop for a mortgage lender by applying for preapproval — not for the actual mortgage. A preapproval outlines the loan terms — including the rate — you’ll likely qualify for when you apply. Once you have at least three preapprovals, you can compare these terms and pick the lender you’ll use for your mortgage. That application process begins once your offer on a home has been accepted or you’re ready to refinance.

Comparison-shopping pays off financially. Applying with multiple mortgage lenders can save you as much as $1,200 a year, according to Freddie Mac research.

How to apply for a mortgage with multiple lenders

Whether you’re buying a home or refinancing, there’s some prep work involved with preapprovals. Follow these steps:

1. Understand current mortgage rates

Ahead of getting a preapproval or quote, do as much research as possible about current mortgage rates. This will help you understand what you’re likely to qualify for.

As you’re getting quotes, make sure:

• You’re reviewing interest rates and annual percentage rates. Unlike a loan’s interest rate, the APR includes certain fees and gives a more realistic view of its total cost.
• You’re comparing apples to apples. Make sure your quotes are for the same mortgage type, loan amount and location, and that they involve the same number of mortgage points.

While your individual rate will largely be determined by your credit score, doing this research will help you discern if a loan offer is reasonable.

2. Choose your mortgage lenders

The CFPB suggests applying for preapproval with at least three lenders. You might use our best mortgage lender guide, as well as recommendations from friends and family, to narrow down your choices.

It’s worth applying for preapproval with your current financial institution, as many offer discounts for existing customers. But keep in mind that there are many types of lenders, including banks, credit unions and online providers — and some may offer you better deals than the bank you already use.

3. Request preapprovals

To get preapproved for a mortgage, you’ll provide documents related to your financial situation, including pay stubs and W-2s or other proof of income. If you’re self-employed, you’ll provide documents related to your business as well. Here’s a comprehensive list of documents needed for preapproval.

If the lender determines you’re eligible for a mortgage, you’ll typically receive the preapproval letter within one to three business days. Some lenders now provide them online the same day — or even instantly.

Note that a mortgage preapproval is different from a mortgage prequalification. A prequalification is a basic assessment of your credit and finances that gives you a general idea of what you might qualify for. A preapproval involves submitting documentation. A preapproval letter allows you to make offers on homes; a prequalification does not.

Will multiple mortgage applications affect my credit score?

When you request a preapproval for a mortgage, the lender pulls your credit report. This is considered a “hard” credit check, which can lower your credit score by a small amount, usually five points or less. The check stays on your credit report for two years.

Don’t worry about comparison-shopping: Credit scoring models group multiple mortgage inquiries together as one, provided these pulls all take place within a 45-day period. That means you’ll only receive one penalty.

“There will be a record of multiple credit inquiries if you do apply with multiple lenders, but there should be little to no impact on your credit score from those inquiries, and it shouldn’t discourage you from speaking with multiple lenders until you find the right fit,” says Lauren Anastasio, a senior certified financial planner with Vanguard.

FAQ

• Is there a fee to get preapproved for a mortgage?
  

  It typically doesn’t cost any money to get preapproved for a mortgage. Some mortgage lenders do charge an application fee for the actual mortgage loan, however, which can cost up to several hundred dollars.

• Can I lock in my mortgage rate with multiple lenders?
  

  While you can technically lock your rate with multiple lenders, doing so can cost money, whether or not you ultimately apply for a mortgage with that company. It’s best to lock your rate only with the lender you know you want to work with.

• When should I apply for a mortgage?
  

  If you’re buying a home, you’ll apply for a mortgage once a seller accepts your offer. Before you begin searching for homes and making offers, however, you’ll need a preapproval. The preapproval process is very similar to the application process, and much of the information you provide for a preapproval transfers to your formal mortgage application when the time comes. Typically, a preapproval remains valid anywhere from 30 days to 90 days. If you haven’t found a home by that time, you might need to ask your lender to issue a new preapproval letter.

Additional reporting by Emma Woodward