Primary marketMultiple Mortgage
I can recall back in the stone ages, say the last 1980"s, when consumers spent most of their time choosing a lender or mortgage broker. But once the chosen lender was so anointed that was pretty much it. No more applications to fill out, no more documentation to mail or fax. It was done. But not anymore. It"s not uncommon for a borrower to complete an application with more than one lender at a time to see who can ultimately offer the better deal. After all, a little head to head competition is good for everyone, right?
Ten years ago if a lender found out that the borrower had multiple applications in motion, they would simply not review the file. Why? Additional credit inquiries could possibly mean that more credit has been taken out with no resulting monthly payment shown. A recent credit inquiry could mean that the potential homebuyers had taken out a new loan on a car, a boat or even a home equity loan. And with no monthly payments reflected until the lender could be satisfied that the payments either did not exist or the payments were still within debt ratio rules then the lender would move on. Back then, multiple inquiries could lead to a declined loan.
Now, multiple inquiries mean little. It"s the overall creditworthiness of the borrowers that matter most. Now, having more than one mortgage application actively being worked by multiple lenders is not out of the ordinary. In fact, some loan officers will tell you that it"s more common than not. After all, it"s easy to apply for a mortgage.
Are there drawbacks to the consumer? From a lender"s standpoint, offering their best rate and terms is fairly sufficient. Call lender A and call lender B and ask for their best shot and complete an application with both, waiting until the very last minute to squeeze every last ounce of will out of their loan officer for the best deal. Does that make sense? It might if lenders were the only players in the game. But they"re not. Ask your attorney, appraiser, title company and insurance agent.
For instance, you found a house, made an offer and set a closing date of June 30th and apply at three different lenders. The first thing a lender will need is an appraisal, that either means you have to buy three appraisals (one for each lender) or just pay for one appraisal for one lender. If you change lenders, then all you need to do is get a “retype” of the same appraisal, with the associated fees of doing so.
You"ll also be opening up an escrow or settlement and a preliminary title report. Guess what? You"ll be hard pressed to find a title company willing to issue three different title policies for the same transaction. You"ll have to make a choice as to which lender you"d like to appear on the initial report.
Insurance? Each lender has what is called as “mortgagee clause” that spells out the legal entity that is making the loan. When your insurance agent issues a new policy, it must contain the correct mortgagee clause. Attorney? Any legal work that is lender-specific will have just one lender in the documents, not a blank line to be filled in later.
The problem? Should you play several lenders against one another, it"s really the lender who has their name on all the documents that has the upper hand. If your plan was to wait until the day before closing to make your final choice, the choice may have already been made. While it may seem simple just to change one name to another, it"s not a matter of opening up a bottle of White-Out and putting the new lender"s name on all the documents. You could delay your closing from anywhere from 1 to 2 weeks due to the changes.
There is absolutely nothing wrong with competition. It"s great for our economy. But if you"re of the impression that since applying or a mortgage is so easy that you can switch lenders at your whim, think again. It can be done, but by all means give yourself enough time for all the parties to catch up with you. A couple of weeks before? Not a problem. A couple of days before? Big problem.