Is it best practice to shop lenders?

Question

Hi all. Is it best practice to shop lenders? Any tips/tricks or info around this would be super helpful.

My situation:

Credit score of 800-805 (depending on company). I want the lowest interest rate, and lowest down payment for a 30 year mortgage. I have zero debt, a good/great W2 salary (it's all relative really), and have plenty of assets. Without tooting my own horn, I'm a great candidate for a conventional loan (especially at the price point I'm looking to finance) and should get low rates no matter which lender I go with.

So... is it worth shopping around? Or do I just go with a referred lender and use my time doing other important tasks?

I have also heard of shopping around for perks (lender credits, appraisal credits, closing cost assistance etc.)... is this a real thing? Even in this competitive investment market?

Thanks in advance for all your insights and opinions :-)

Daniel Hennek · Answer

Here's the stuff most lenders won't tell you.

We all work on a margin.  Margins in the industry can range from 1% up to 4.5% depending on the loan amount, business channel, loan officer selection, and several other things.  This is the primary reason you can shop around and find drastically different quotes.  2 MLO's quoting you from the same outlet could have different offers because one has a higher margin than the other.

If you go to the biggest retail mortgage operations you're generally going to get higher rates from telemarketers.  They use their brands to justify the extra profit margin and pay their loan officers relatively little compared to other operations so they get a double whammy of profit margin increase.  If you find a high level individual MLO concerned with growing their own personal business you'll generally find a lower margin because they have already looked around the job market and made a switch to a lender that offered them better comp and lower rates to sell.  Some large operations will offer clients the same exact rate for 2 points when my company can do it for 0 points.  I have a few outlets that routinely sell their retail clients higher rates, and I get my clients through that same companies wholesale operation with lower rates and less cost.  So, same company, different channels (retail vs wholesale) and drastically different terms.

So, if up to 2% of your loan amount seems like it's worth your time to make a few extra calls then do it.  Also consider that you're not just shopping the rates but also the individual MLO.  When shopping rates be sure to get quotes on the same exact rate and within a few days of each other, ideally the same day to give you the best snapshot comparison.  The market can move and you could find one lender is cheaper this week and more expensive the next based on the outlets they have access to.

In the end you have to make a bet on who to work with and when to lock.  It's all a bet and sometimes 3/4 of a percent isn't that big of a deal when you start looking at the big scheme of things.  2% borders on obscene in my opinion though and I don't think anyone deserves a margin that much higher than anyone else no matter how many commercials they pay for telling you they're they best.

Chris Mason · Answer

There is a critical thing that you didn't include.

The majority of would-be homebuyers right now can't even get into contract. I strongly suggest focusing on that. It's not possible to save a dollar on fees or monthly payments if you don't get into contract - in that case, the interest rate is 0%, monthly payments are $0, and loan balance is $0, so you do literally have the best possible mortgage at all, but the downside is that you do not own a home.

You get 5 cards when you play poker. Your credit, income, and assets are the first 3. Realtor is 4th card, loan originator is 5th card. Those are the things that primarily drive if you get an offer accepted at all.

Bill B. · Answer

Nope. The fee is either built in to the rate or paid by the lender that gets the deal. You’ll be shown the a few options regarding length of loan and points to buy down rate. It should be pretty easy to compare to the preferred lender. You are probably even safe showing the broker the preferred rate AFTER they provide you with their options. (You don’t want to give them a bar to get under fro your business when they could do better.)

Sandy Metivier · Answer

Thanks Bill! I did not realize that 30 day timeline... that is helpful to know.

Typically do borrowers pay mortgage broker fees?

Sandy Metivier · Answer

Thanks for the response Chris. But I want to be clear I'm understanding your comment correctly, you are saying not to focus on shopping around with lenders but to just get a pre-approval on a loan and get in the game?

I'm on that 5th poker card.

Bill B. · Answer

@Sandy Metivier

All inquiries within 30 days are considered one inquiry. So feel free to get a quote from the “preferred lender”. At the same tine, got to a mortgage broker who will get quotes from 5-10-maybe 20 lenders and present their best deals. If it’s close, MAYBE you go with the preferred lender. If you see a good reason/benefit from it.

Is it best practice to shop lenders?

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