Mortgages are almost always the biggest and costliest loans people will take out in their lives, so getting the best deal is one of your most important financial moves. Along those lines, many borrowers want to know if applying for multiple mortgages at the same time makes sense in this quest.
Of course, the top way to get the best deal is by making sure your credit score is in good condition; this will affect your interest rate, which is a major part of how much a loan costs. The other part is lender fees. Loan fees vary by lenders, so borrowers should shop around to get the lowest fees — not just the lowest interest rate.
Fees on mortgage applications add up
The big problem with multiple mortgage applications is the fees that come with each one. If your goal in applying for multiple mortgages is to save money, then it may not make sense to spend a wad on application fees, usually hundreds of non-refundable dollars per application.
Most lenders won’t charge a fee for prequalification, so borrowers can get estimates without a hit to their wallet.
However, some lenders do charge a fee for mortgage preapprovals, as they require income verification, credit checks and other administrative duties that are more intensive than prequalifying. And they will typically want a deposit of around 1 percent of the loan value to lock in a rate.
Some lenders will remove a preapproval fee as a courtesy (and a way to entice you to become a customer), so it doesn’t hurt to ask.
“While most lenders won’t tell you an application fee is negotiable, it does tend to be one of the few costs associated with obtaining a mortgage that can be flexible, or waived,” says Lauren Anastasio, wealth advisor at SoFi in Philadelphia.
Will multiple mortgage applications affect my credit score?
When a lender pulls your credit score to approve you for a loan, that’s counted as a hard inquiry, which can count against your credit. However, credit score models take into account multiple inquiries that are used for the purpose of rate shopping. In this instance, credit reporting agencies, such as Experian, will group all of those inquiries together and just count them as one.
“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,” Anastasio says.
What kind of fees are included with a mortgage application?
Homebuyers will pay a variety of fees for taking out a mortgage. Some of these are lender fees, but some are just the cost of homeownership, such as taxes and insurance. It’s important to understand these fees so that you know exactly how much the loan costs.
First, your mortgage application fee might be called something else. For instance, some lenders may say they don’t charge an application fee, but they’ll charge an origination or processing fee, Anastasio points out. They might also waive the application fee, but have a higher underwriting fee.
“It’s smart to shop and compare interest rates and fees. They both will be different from lender to lender,” says Adam Spigelman, vice president at Planet Home Lending in Cherry Hill, New Jersey. “Your goals and needs influence which combination of costs and rates will be your best bet. For example, if you are not staying in the house long term, it might make more sense to take a slightly higher interest rate to get lower fees than to take the lowest possible rate and pay higher fees.”
Typical upfront costs borrowers can expect to pay include:
- Origination and lender fees
- Title insurance
- Mortgage points
- First year homeowner’s insurance premium
- Escrow deposit
While examining your loan costs, be aware of “junk fees.” These are added costs lenders might tack on to your bill. You might find two line items that pay for the same thing, such as “origination” and “broker” fees. If you spot this on the loan breakdown, be sure to ask about it. Also, having multiple loan costs to compare can give you some leverage when you’re negotiating with a lender.
Here are a few (possible) junk fees to be aware of:
- Processing fee
- Document preparation fee
- Administrative fee
- Application fee
- Email fees
- Inspection fee
- Underwriting fee
- Mortgage rate lock fee
- Courier fee
- Credit report fee
- Wire transfer fee
- Miscellaneous fee
For borrowers who are refinancing, Spigelman recommends asking for a “no-risk appraisal” which can cut down on how much you pay for the loan.
“A “no-risk” appraisal is where the lender pays the upfront cost for your appraisal. If it turns out you don’t have enough home equity to refinance, the lender doesn’t ask you to repay the cost of the appraisal,” Spigelman says.
Yes, you want the cheapest mortgage possible with the best terms, but completing multiple applications is probably not the way to accomplish this. Shop for rates and APRs and compare these. APR is the all-in cost of the loan and includes fees and other costs, so it’s the best apples-to-apples comparison. And don’t be afraid to negotiate with the lender on fees, especially on items where they have some wiggle room.
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