The short answer is yes. Shopping around for a home loan or mortgage will help you get the best financing deal. The price and terms may be negotiable. You’ll want to compare not just interest rates, but all the costs involved in obtaining a mortgage. The Federal Trade Commission summarizes it best: “Shopping, comparing, and negotiating may save you thousands of dollars”.
“You’ll want to find a mortgage lender early in the process so you have a relationship with him or her when you find the home of your dreams,” according to Forbes.com. This way, you can get pre-approved, which definitely jump-starts the mortgage process. It means you can put in a serious offer quickly (should the need arise), and applying for the mortgage itself will take less time.
Yeah, but will comparison shopping hurt my credit?
Well…yes and no. You probably know that each time you apply for a new line of credit you're normally hit with a hard inquiry. Hard inquiries can negatively affect your score. However, depending on what type of credit you're shopping around for and what model you're getting your score from, the extent of the damage can vary. According to Credit Karma, “If you're looking for a mortgage specifically, some credit score models will allow for some level of shopping around by essentially viewing multiple inquiries within a certain time period as just one”.
Bureaus usually identify the fact that you're comparison shopping by noticing the types of credit lines you're applying for and the size of your requested loan, so consistency is key. The timeframe you can typically rate-shop under most models without feeling the effect of multiple inquiries can vary, and is often from around 14 days to up to 45. Credit Karma warns, “Beware that a single inquiry could still have a somewhat negative effect on your credit”.
You may be able to mitigate some of the credit impact by rolling up your sleeves. Before having a bunch of institutions run your credit, do some research on your own. Consult the lenders’ websites to learn about the terms commonly offered to those with similar credit profiles. This way you can narrow down your choices before you start applying and your credit is run.
Also, it's best to go into the process with your credit health in great shape. Knowing that a few hard credit inquiries might dip your score a bit, prepare yourself by otherwise checking that your credit report is spick-and-span and ready for a little bit of a stress test.
Coming soon: Check out next month’s post, “Top Tips for Mortgage Loan Shopping”
Sources: HSH.com; Consumer.ftc.gov; Creditkarma.com.
Photo credit: Freepik.com
