Keep shopping for lenders after pre approval?

Question

Hi all,

I am a first time home buyer and currently lender shopping.  I already have a pre approval letter from one lender.  Should I continue to shop around and get additional pre approvals, or should I start looking working with an agent to find a home and compare lenders after I find a home?

This will be a VA loan, 30 year fixed, in Orange County, CA.  Please let me know your experiences or suggestions.  Thanks.

Geniphyr P. · Answer

Michael

You know..if you have a letter you have used someone's time. If you use someone to get a pre-approval letter you should work with that lender. Shop for a lender BEFORE you use someone's time. And by the way - don't shop rate - shop experience and someone who can do math.

Cory Carlson · Answer

I would recommend you hold on to your pre-qual and when you're done interviewing agents, take their suggestion and compare the two. Just be honest with the lender that you are shopping lenders and they should put their best foot forward. Good luck!

Irving Casas · Answer

Michael-

I'm a real estate agent in Oregon. I do recommend that you apply with a second lender before putting offers in. In Oregon once the seller and buyer have mutual acceptance, the buyer has to stay with the original lender. If the buyer wants to change lenders after mutual acceptance the  seller has to agree. Lenders have different fee structures, so it's smart to shop for the best loan before shopping for an agent or home. If you've already picked an agent, they could also refer you to a good lender.

David M. · Answer

@Stephanie P.

Oh, sorry.  I was imprecise.  Of course Dodd-Frank changed the lending landscape. However, everything I've read in open articles (Time magazine ran a big article a maybe early this years, I think Forbes, I forget who else) has said Dodd-Frank basically disproportionally regulates the banking industry.  For whatever reason, banks, who accept deposits, are more highly regulated than mortgage lenders and brokers.  That is the main reason why their originations are a mere fraction of what they used to be.  Its too costly for them to handle the "tougher" loan cases.  Every loan officer I talk to admits that the banks have had better rates for those with W2 salary and excellent credit and they can't compete.  Yet, the banks have decreased their staffing and/or lossed productivity due to compliance overhead.  I think that's the driver of their rate hike at the end of March when the Fed lowered rates and did the big QE.  Its well known, hell its was publicized, that the bank hiked the rates because they don't have the personnel to handle the increased spike in refinances.  So, it was a supply and demand type issue for them.

Stephanie P. · Answer

How does Dodd/Frank not apply to mortgage lenders and brokers??

Twana Rasoul · Answer

Ask another lender what their rates are, we have been able to get some crazy low rates lately with lender covering all the closing costs as well.  I encourage you to consider 2-4 unit properties in the surrounding areas to get the biggest bang for your VA loan.  the lender can also use the rents from other units to help you qualify for a higher loan amount than you could get otherwise.

Gordon Cuffe · Answer

@Michael Chung I just ran an example quote for a VA purchase loan of 500k with a credit score 720 or above. I came up with a rate of 2.25% 30 year fixed rate with the funding fee and one origination point plus a 6600 credit towards the closing fees. If you can get a better rate than 2.25# , stay with that rate. That rate is with one of my lenders.

Michael Chung · Answer

Thanks all for the input.  I've been working with a broker, and she's aware that I'm still shopping around for others as well.  I am shopping around for local lenders, and waiting to hear back from PenFed/NavyFed.  But as of now, my original broker seems to have the best overall deal.

I've also begun home searching with an agent.  This is very exciting, and I'm learning a lot from everyone.  Thank you.

David M. · Answer

@Michael Chung

Well, this is the US and of course you should shop around.  however, just remember that loan officers are paid on commission.  While its been a crazy market recently, even before COVID-19, most conventional loans have pretty consistent interest rates.  Yeah, the banks are now higher than mortgage lenders or brokers because they no longer have the throughput to handle the volume due the regulations imposed by the Dodd Frank Act (well, they cut back on their staffing because the regs made it more difficult for them to make money).  The Act doesn't apply to mortgage lenders and brokers.  So, see which ones offer less origination-type fees (i.e. their actual fees) and which do you think offers better service.  You might get some really wildly good rates from PenFed or local / community / credit unions.

Also, don't forget that the Credit Bureaus understand that you should be able to shop for a loan.  Multiple credit pulls within the same 2 week'ish timeframe is counted as one pull.  So, last time I went shopping for a loan, I spent about 3 weeks (I had my day job with the Army back then) calling around and getting 7 lenders lined up.  Then, one Monday I emailed them all with my signed approval to pull my credit that week.  if you find a lender who doesn't understand this or is really pushy to let them pull your credit, that is a red flag to me.

If you had to time, you could shop for a loan while you shop for a home / real estate agent.  I wouldn't recommend shopping after you get under contract only because of the confusion is can cause when trying to do your deal.  In NJ, you can do that, but I had one client do it and it was kinda crazy.  Also, you lose time to getting your loan ready in time for closing if you have to close relatively quickly.

Good luck.

Grant Schroeder · Answer

As Cory and Irving both said, it doesn't hurt to get second opinion from another lender!

Keep shopping for lenders after pre approval?

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