How many mortgage lenders should I apply to?

How many lenders should I apply to for a mortgage?

When applying for a mortgage, it’s best to compare at least three lenders, according to the Consumer Financial Protection Bureau (CFPB). This can help you uncover the ideal combination of loan type, interest rate and fees that meets your needs. It can also help you negotiate with a lender you like if you have a lower offer from a competitor. 

Comparison-shopping pays off financially, as well. In fact, applying with multiple mortgage lenders helps you save money — as much as $1,200 a year, according to Freddie Mac research.

Bear in mind, you won’t actually apply for the mortgage until your offer on a home has been accepted or until you’re ready to refinance. To comparison-shop ahead of that step, you’ll request a preapproval instead. This is a document that outlines the specific loan offer — including the rate — you’ll likely qualify for when you apply. 

How to apply for a mortgage with multiple lenders

Whether you’re buying a home or refinancing, there’s some prep work involved when it comes to getting preapproved with more than one lender. 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 and APRs. Note the differences in rates by lender, as well as the differences in rate by mortgage type, loan amount, location and more.

While your individual rate will largely be determined by your credit score, this step offers perspective on what interest rates are like today and helps you compare fees between lenders.

2. Choose your mortgage lenders

While there’s no right number of mortgage lenders to get preapproved with, the CFPB suggests contacting at least three. Having done your research beforehand, you’ll be able to make a more informed decision as to which three (or more) you’d be comfortable working with. You might use our best mortgage lender guide to help narrow down your choices.

Keep in mind: While it’s tempting to go with your current financial institution for your mortgage, there are many types of lenders, including banks, credit unions and online providers.

“Find a mortgage originator you like and trust, and stick with them,” says Mike Carpenter, a senior mortgage loan originator at Kirkland, Washington-based Washington First Mortgage Loan Corp.

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, or sometimes in the same day or instantly online.

Note that a mortgage preapproval is not the same as a mortgage prequalification. A prequalification is a basic assessment of your credit and finances — often done in person with a loan officer on the spot, or immediately online — and gives you an idea of what you might qualify for. A preapproval is a more thorough evaluation and involves submitting documentation about your finances. A preapproval letter allows you to make offers on homes; a prequalification does not.

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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.

In general, several hard inquiries within a short time frame might make a bigger dent in your score. However, credit scoring models group multiple mortgage inquiries together as one — provided these pulls all take place within a 45-day period.

“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 later charge an application fee when you apply for the loan, however, which can run 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 implies you’re committing to applying for a mortgage with that lender. Some rate-locks come with fees, too, which you might still be responsible for if you decide to work with another lender. For these reasons, it’s best to only lock your rate 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