Why It Pays to Shop Around for Mortgage Pre-Approval
by Maurie Backman | Updated July 19, 2021 - First published on May 16, 2021
Looking for mortgage pre-approval? You may want to make more than one call.
Getting pre-approved for a mortgage is a smart move in general. And in today's competitive housing market, it's an extremely important step to take.
There are many benefits of mortgage pre-approval. First, by getting pre-approved for a home loan, you'll know much you're entitled to borrow (though pre-approval doesn't guarantee you an actual mortgage). That pre-approval could help you narrow down your home search -- and help you avoid falling in love with properties that are out of your price range.
Getting pre-approved for a mortgage also sends a message to sellers that you're a serious buyer. If you and another party make an offer on a home, only you've been pre-approved for a mortgage and your competition has not, that could be the thing that gets your bid accepted.
But if you're going to seek out mortgage pre-approval, you may want to do a little research. In fact, it could pay to get a pre-approval letter from more than one lender.
It's good to have options
Just as it's wise to shop around for an actual mortgage, it's also a good idea to solicit more than one pre-approval offer. The upside of mortgage pre-approval is that you're not obligated to move forward with a mortgage application just because a lender has pre-approved you. (Just as that lender isn't obliged to grant you a mortgage based on that pre-approval.) As such, if you get more than one pre-approval letter, you can compare your options and see which one is better.
Let's say one lender pre-approves you for a $200,000 mortgage, while another is willing to pre-approve you for $220,000. Presenting the higher pre-approval notice could put you in a stronger bargaining position when you look for a home or make an offer on one. Plus, having multiple pre-approval letters will give you a sense of which mortgage lender to go with for your actual loan, once you're ready to sign one.
Now, if you're going to shop around for mortgage pre-approval, you will need to be efficient. As is the case with an actual mortgage, if you do your rate shopping within a 14 day period, the various hard inquiries that land on your credit history will all count as a single inquiry, since they're being made for the same purpose. The result? Less credit score damage. But if you space out your calls to lenders and go outside that time frame, you could wind up with multiple hard inquiries, which can leave a greater hit to your credit score.
Get the information you need
Buying a home is a big decision, as is signing a mortgage. The terrific thing about pre-approval is that it gives you a chance to explore your options for borrowing for a home without actually having to commit to anything. Plus, it'll give you a good idea of how much house you can afford so you don't spin your wheels looking at homes that are way out of reach financially.
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