As you begin your journey towards buying a new home, one of the first and most crucial steps is to get pre-approved for a mortgage loan. But should you get pre-approved by multiple lenders? In this blog, we’ll explore the advantages and disadvantages of this strategy, and provide some insights to help you make an informed decision.
Pros of Getting Pre-Approved by Multiple Lenders
1. Competitive Interest Rates:
By seeking pre-approvals from different lenders, you can compare their mortgage interest rates and terms. According to a 2018 Freddie Mac study, borrowers who obtained quotes from five different lenders saved an average of 0.17% on their mortgage interest rate, which amounts to approximately $3,000 in savings over a 30-year loan for a $250,000 home.
Having multiple pre-approvals gives you the flexibility to choose the lender that best fits your needs, whether that be better customer service, lower closing costs, or a lender with a better understanding of your specific financial situation.
3. Negotiation Power:
When lenders know you have multiple pre-approvals, they may be more likely to offer better terms to win your business. This can result in a lower interest rate or reduced fees, saving you money over the life of your loan.
Cons of Getting Pre-Approved by Multiple Lenders
1. Impact on Credit Score:
Each time a lender pulls your credit report, it results in a hard inquiry, which can temporarily lower your credit score. However, the Fair Isaac Corporation (FICO) allows a 30-day “rate shopping” window, during which multiple inquiries for the same type of credit only count as a single inquiry. Be sure to complete your mortgage pre-approvals within this window to minimize the impact on your credit score.
2. Time and Effort:
Applying for pre-approvals from multiple lenders can be time-consuming and may require you to provide the same information repeatedly. It’s essential to weigh the potential benefits against the effort and time required to obtain multiple pre-approvals.
3. Potential for Confusion:
Juggling multiple pre-approval offers can be overwhelming, especially for first-time homebuyers. It’s crucial to stay organized and carefully compare each offer to ensure you’re making the best decision.
Obtaining pre-approvals from multiple lenders can be a double-edged sword. On one hand, it can help you secure the best mortgage terms and save money over the life of your loan. On the other hand, it can be time-consuming and may have a temporary impact on your credit score.
Ultimately, the decision to seek pre-approvals from multiple lenders should be based on your personal financial situation and goals. By carefully weighing the pros and cons, you can make an informed decision that sets you up for success in your homebuying journey.