Submitting Applications to Multiple Mortgage Lenders

Q Hyattsville: Every advice source suggests doing of plenty of homework before selecting a mortgage lender. Does this "homework" include actually submitting preapproval applications? In other words, is it common practice to submit more than one application, to see which rates come back, or is this considered "leading on" a particular lender and asking it to do too much work if you aren't committed to it?

ASubmitting multiple applications can be part of your "homework," but it's the part that comes toward the end, not the beginning, said Peter Hébert, a loan officer for Allied Home Mortgage Capital in Ellicott City.

You want to start by researching the mortgage companies, said Hébert, who has 20 years of experience in mortgage lending, the secondary market and residential real estate. Understand what type of lender it is. Is it a broker, a mortgage lender, or a depository institution that also does mortgages?

Next, ask questions about reputation. "Has the lender garnered adverse media attention, numerous lawsuits, or complaints from consumer advocacy groups? . . . Has the lender cut back its staff? Do they have a policy of referring the customer up to the best possible product with the lower rate?"

Another key part of your homework relates to your information, he said. That means collecting documentation of your income, debts and assets.

If you submit multiple applications (which involve pulling your credit history and sharing your Social Security number), do so within a few days of each other. "Lenders telling you not to don't want you to competitively shop, but that is your right," he said. "Excessive inquiries can drop a [credit] score, but that will not be the result of speaking with two or three lenders within a few days."

A lender should not be offended that you're shopping around. "A general conversation about the company or the market is not the same as an application, neither of which are regarded by lenders as customers leading a lender on."

Of course, he said, "lenders desire customer loyalty to the same extent that customers want the best product, service, interest rate and cost to get the rate."

And don't be surprised if the rates do turn up with similar terms, he said. "Since many lenders secure capital from similar funding sources, rates should be fairly close with one another assuming competitors have similar overhead cost structures."

As you shop, make sure you're comparing identical loans, he said. "Always use the annual percentage rate on the truth-in-lending disclosure as the comparative benchmark. If you are considering a nontraditional loan, insist on a copy of the program disclosure at application. . . . Do not borrow on terms that you do not understand. Make sure that you understand how the loan works prior to closing based on the contract, not verbal assurances."

-- Mary Ellen Slayter