Should I apply with more than one lender?

wemmington · ‎07-22-2012

I'm buying a new construction house and the builder offers $3500 in discount if I use their lender (Wells Fargo) so my question is there any point in applying with multiple lenders? I'm sure there is some fluctuation in rates from one lender to the next but I doubt it will amount to $3500 but maybe I'm wrong. I'd rather not rack up a bunch of inquires if I don't have to but if its going to actually save me more than the $3500 I will apply with 10 lenders if need be.

Details:

price 318k

20% down

30 year conventional

middle credit score 801

will rate lock in the next 2 weeks

house complete end of August or early September

tia

Anonymous · ‎07-22-2012

My understanding is that builders really, really want you to use their lender, to the point that they will add in all sorts of incentives (free upgrades, etc.), or to deter you from using another. It's like a car dealership, in that it's a major revenue source.

That said, if the terms are not agreeable, I'd consider having another lender provide a quote as a bargaining chip, just not a very potent one.

EDIT: To answer your question, it's really going to come down to your terms and if you have to pay any points or what not. Rates are ridiculous right now, and with your scores, the build should be offering their top tier.

StartingOver10 · ‎07-23-2012

Yes builders offer an incentive to use their lender.

However, IME the difference is in the closing costs to use the builders lender. So you definitely want to get at least one more quote. I have found that the closing costs from many of the builders exceed the bonus so you ultimately end up paying more to close with the builders lender. The rate may be higher too, but most people are rate sensitive so they pad their costs rather than the rate. Getting the quote will put you in a better position to negotiate some of those excess costs. In fact, if they won't negotiate (and most do) then use the other lender. This is a perfect example of the benefit of the GFE. Also, check your contract. It is common for the builder to pass on "normal seller costs" to the buyer so that $3500 benefit may not actually be as much as it looks like. Normal is different in different areas. Check the specific costs listed in your builders contract.

ceejx · ‎07-23-2012

@wemmington wrote:
I'd rather not rack up a bunch of inquires if I don't have to but if its going to actually save me more than the $3500 I will apply with 10 lenders if need be.

Keep in mind that any and all mortgage inquiries within a 14 day period count (as far as FICO goes) as 1 inquiriy. It accounts for and does not penalize rate shopping.

OptimalFICO · ‎07-23-2012

I would absolutely apply to more than one lender, especially if your one is the Builder's lender! I would never go through a mortgage broker - it is wise to make sure you are dealing with a "direct lender." Credit unions often have much better rates and terms, make sure to check with at least one (e.g., PenFed, Digital). Always get a written estimate of closing costs in advance to help compare lenders and terms.

Seigex is partially correct about all mortgage shopping inquiries within a 14 day period counting as one, but it can be more complex than that. Following is more info from MyFICO's education links:

http://www.myfico.com/crediteducation/creditinquiries.aspx

What to know about "rate shopping."

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, the score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

CAUTION: It is especially important to know that hard inquires are often mistakenly counted. Inquiries should identify a purpose, but some uneducated lenders and office assistants fail to do so. The name of the company can identify the purpose, but there are times when the CRAs cannot identify the purpose, such as when ABC Bank offers auto, mortgage, credit card and business loans. If those companies fail to indicate a mortgage purpose, multiple inquiries may end up counting against you. The failure to properly code the system can put multiple hard inquireis on your credit report. Even though there is a window for auto and mortgage inquiries, the system breaks down and can unfairly charge you valuable credit score points. I am not aware that there is any way to correct the ones errouneously counted as hard inquiries. They will lose their impact over time, but you want to manage them if your scores are borderline to ensure that you qualify for the best rate possible. A loss of even a .25% rate can cost you dearly on a mortgage!