Your goal in securing a mortgage should be to snag the most favorable rate on that home loan that you can. The lower your rate the less interest you'll pay, and the easier it'll be to keep up with your monthly mortgage payments.
That's why you'll often hear that you should shop around for different mortgages rather than settle on the first offer you're given. A mortgage with a 3.3% APR will cost you a lot less over time than a mortgage with a 3.5% APR, even though that difference may seem negligible at first glance (hint: on a 30-year fixed $200,000 mortgage, you're talking about paying $876 a month versus $898), so if you apply for different loans, you may eke out more savings than anticipated.
There's just one problem with applying for multiple home loans: If you're not careful, too many hard inquiries on your credit record could damage your credit score, making it harder to borrow money going forward. That's why you must shop around for a mortgage strategically -- and doing so within a condensed period of time is a good way to go.
The benefit of streamlining your mortgage search
Applying for a bunch of mortgages within a short timeframe will make an otherwise stressful process less harrowing, since you'll get answers from lenders sooner than you would by spreading out that search and waiting repeatedly. But applying for several mortgages at once is also important from a credit score perspective.
When you make it clear that you're shopping around for the best rate on a single loan, as opposed to shopping for a number of different new loans, then that activity isn't treated the same way multiple credit card applications would be treated. If you limit your mortgage search to a 14- to 45-day window, that activity will be treated as a single mortgage application, and as such, it will count as only one hard inquiry on your credit record, not multiple.
Of course, the opposite holds true when it comes to credit cards. In that case, it pays to wait as long as possible between new card applications, since opening too many at once could be a sign of impending reckless spending (or just plain overspending) on your part.
But mortgages don't work that way. The credit bureaus that compile your score realize that most people who apply for four mortgages within the same four weeks, give or take, aren't likely looking for four homes, but rather, just want to secure the best rate possible on a loan with a lengthy repayment period.
Lock in the best mortgage rate possible
The higher your credit score when you go into your mortgage hunt, the more likely you are to snag the most favorable rates out there. A few good ways to boost your credit?
- First, pay all of your incoming bills on time. That'll boost your payment history, which is the single most important factor used to calculate your score.
- Next, pay off a chunk of your existing revolving debt to bring down your utilization ratio.
- Finally, check your credit report from each of the three major reporting bureaus (Experian, Equifax, and TransUnion) for errors. Correcting negative details about your credit history could bring your score up quickly.
Following these steps, coupled with smart mortgage rate shopping, is a good way to make the cost of homeownership more affordable.
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