TOW: Rate Shopping Can Kill the Deal
Did you know that shopping for the lowest mortgage rate can actually kill the deal? It can, and here’s a little story to explain. I had a client that went to their bank, filled out the application, and got approved. But they didn’t like the loan officer so they went to another bank and did it again. They got a higher rate, so they went to a mortgage banker. And, yes, filled out a third application. They were declined. Then their realtor referred them to me, and they filled out another application. When a loan officer sees they have been declined, they can’t really see the reason.
It’s not always apparent as to why someone is declined for a loan. Luckily, we were able to get the deal done for the client because we could drill down and see that it was because of multiple credit pulls. That we could explain once it was apparent, but it took a lot of time to get it through underwriting. Unfortunately, in this situation, the borrower didn’t get the lowest rate they could have because the credit pulls worsened their credit scores. Ultimately, they ended up with a worse rate than the second lender offered.
Shopping for the lowest rate can be a good thing, but once you sign disclosures or that application you are giving the lender the right to pull credit. It’s better to ask for the rates without filling out the application. The rates will vary once you pick your lender, fill out the application and supply your financial documents. Plus, it takes time to get approval. Once you are approved, you can lock a rate in. That rate may be better but it can be higher. But if you were totally honest with the loan officer and gave them as much accurate information as possible, the rate should be close. If your Realtor recommends their preferred lender, make sure you aren’t getting on the lending treadmill if you’ve already been approved and are happy with your loan officer.
The moral of this story, is rate shopping is a good thing done right. Finding the right lender that you want to work with is just as important. So get your preapproval early for that home loan and go shopping. We are more than happy to discuss rates and the trends to give you an idea of what we have to offer. Don’t hesitate to call us.