Debunking Home Loan Myths: Shopping Around Is Not a Bad Thing
Don’t Believe Home Loan Myths That Suggest You Have Few Opportunities to Get the Right Mortgage. Shopping Around Is Actually the Best Way to Ensure You Get a Good Loan.
Home Loan Myths
One of the most important things you can do to get a good home loan is shop around until you find the right mortgage rates and conditions for your budget and needs. However, many people believe the home loan myth that shopping around has negative tradeoffs like making you miss out on a good mortgage deal, or believing that you can only let one bank check your credit before it seriously hurts your credit score. These mistakes all stem from misunderstandings or fear. Taking out a home loan is a major financial step, so a bit of fear and caution is understandable. However, information is not only the best way to erase these home loan myths, it’s the best way to get a great deal on a first mortgage to make your home loan more affordable.
The simpler concern is that you won’t be able to lock in a great rate and low fees if you shop around because you need to be ready to jump on the first good deal you get. While timeliness is something of a factor, it’s usually not measured in hours or days but being within a week or two. Banks would love you to accept their offers right away, but they understand that good customers want to shop around. And if their rates are actually the best, then they have little reason to discourage you from comparing their offer to other banks’ and discovering how good a deal it is. What’s more, they understand that before you sign anything you should go home, think it over, discuss it with trusted family, and verify important financial information. They should want you to do this before you sign in order to avoid headaches.
And if you feel like a lender is exerting high pressure to convince you to accept a loan offer right away, you should be concerned. The only time someone tries this when selling to you is when they think you won’t come back if you walk away. In the case of mortgages, the only reason you wouldn’t come back after doing research is if it’s a bad deal, so their attempt to keep you uninformed and hurried suggests some deeper problem or dishonesty. This is a strong sign that a lender is not of the caliber that you want helping you deal with paying for your house for the next few decades.
The final reason people worry that shopping around has a big cost is because they believe that they won’t get a better deal. Even if you have bad credit, there are always steps you can take to ensure you get a few manageable offers. Ideally, you’d get early confirmation from a few banks offering loans you like before you pick one and go through the pre-approval process. The point is that banks want your business. They want your signing fees, they want your interest, and they want to turn you into a lifelong customer who might refinance their home or use their lending services if you opt for another big purchase in the future. So they’re going to offer you competitive rates and deals that will entice you to bank with them as long as they can afford it based on their models. This means you will get other mortgage loan offers and have options.
The other major reason why people think shopping around is bad is they worry about their credit score. Formal credit enquiries, which all banks do before offering you a mortgage contract to sign, do ding your credit score for about five points. It’s the same as applying for a credit card in that way. So it’s reasonable to be concerned that if you let too many banks check your credit, you’ll end up in a position where your score is too low to get the best rates.
Fortunately, a unified policy of a mortgage “shopping period” has eliminated this problem so you can shop from multiple lenders and only experience on ding on your credit score that accounts for all of them. Basically, from the first credit pull made by a mortgage lender, you have 14 days during which any subsequent pulls to check your score will not affect you. This makes it safe and easy to compare lenders, let all of the ones that interest you check your credit score so they can offer you a complete, accurate quote based on their rules and your data, and you don’t pay for it. Of course, if you wait too long then any checks after the two-week period will again impact your credit score, so it’s important to do a bit of planning before you get to this stage of mortgage shopping.
So the risks of shopping around are few and insignificant. The supposed downsides and costs of comparison shipping to find the right mortgage proves to be one of the least accurate home loan myths, despite being pervasive.