In a recent home buyer class, an attendee asked how their credit score would be affected if they spoke with multiple lenders and they each pulled a credit score.
My Question Back to Them….
Why are you having multiple lenders pull your score?
Their Answer……
They want to see what lender has the best rates and a lot of the lenders they have spoken with want to pull their credit first.
Initially, Interest Rates Are a Meaningless Number
When you are beginning the loan process or even taking that next step to pre-approval, the honest fact is, today’s rates are really not that valuable to you. The reason…rates are meaningless until you are ready to lock the rate. With a purchase, you can’t lock a rate until you have an accepted contract and are ready to move forward with a transaction.
There Will Always Be a Lender that Can Beat Another Lender’s Rate…How?
In the early stages of the loan process a lender’s rates are just numbers. There is always a lender out there that can always beat another lender’s rate. The reaso…there is no commitment on the lender’s part. When you call a lender and ask for their rates, they know you are shopping so most will quote you the lowest rate available to a borrower with a perfect loan application because it’s the only way a lender will stay in the game with a rate shopper. The hopes are that you will choose them and then they can make the adjustments later.
What Happens When You Call Multiple Lenders Asking for Their Rates?
If you call around for interest rates and the lender you speak to says “these are the rates today, but you may not qualify for these rates based on your total financial package” they are telling you the truth. Interest rates can and do vary based on your credit score and income. If you call another lender, or you talk to your friend and they say XYZ bank will give me 3.5% (ask them if they have already locked their rate), this may not be the rate for you. That lender will have to verify your credit and income and by then, even if you could qualify for this rate, it will likely not be available any longer. But, the lender who quoted you a teaser rate without knowing your financial situation got you hooked because they quoted you the lowest rate and you threw out all your other loan applications thinking you’d found the golden ticket. In the end, you’ll end up paying more.
When Mortgage Shopping, Interest Rates Aren’t the Be All End All
Another thing to keep in mind… interest rates are not the only fees you’ll be paying. Someone may be able to quote you a lower interest rate, but that lower rate could come with greater fees. In this case, the lowest interest rate possible may not be in your best interest.
Shop for a Mortgage Advisor with a Variety of Loan Programs Not the Rate
How do you shop for low interest rates? Shop for a mortgage professional who has access to a wide variety of loan programs and who will shop for you to get the lowest interest rates when you get an accepted contract instead of calling lenders and asking for today’s rates. Having a mortgage professional you trust, feel confident in and feel comfortable with is a lot more valuable than someone that can spew rates at you. Remember, when you are in contract and time deadlines are in place, you need to have someone that can get the job done, not just empty promises of low interest rates.
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