6 Reasons Home Buyers Get Pre-Approved by Multiple Lenders – Should You?

When you’re buying a home, getting pre-approved for a mortgage shows sellers that you’re a serious buyer. It also gives you an idea of ​​your potential interest rate and your maximum purchase price.

Most potential home buyers only get one pre-approval, but according to a recent Zillow study, about 32% of home buyers receive two or more pre-approvals.

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While you technically only need one pre-approval to buy a home, there are several reasons why it might make sense to get pre-approved by multiple lenders.

See also the four best ways to use your bank when buying your first home.

Get a better rate

According to the Zillow report, among those who got more than one pre-approval, 45% of first-time buyers and 30% of repeat buyers did so because they found a different lender that offered a better rate.

Shopping and comparing pre-approvals lets you explore different loan structures and terms. For example, some lenders have higher closing costs but offer lower interest rates, while others may advertise low or no closing costs but have a higher interest rate.

When you’re pre-approved, sit down and find out how much you’re comfortable paying monthly, whether you want a 15-year or 30-year mortgage, and other details that will help you determine which lender’s loan is the best deal for you.

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Gain negotiating power

Getting multiple pre-approvals can also give you some negotiating power with creditors. If you only get a pre-approval, the lender will not be incentivized to compete for your business. But if you have multiple pre-approvals, the lender will have a better reason to give you the best terms available so you can choose them when the time comes to actually apply for your mortgage.

Explore a combination of pre-approvals

The Zillow report revealed that of the buyers who got multiple approvals, 39% of first-time buyers and 30% of repeat buyers got multiple pre-approvals because they wanted a diverse mix of lenders to choose from.

There are pros and cons to getting a mortgage from a big bank, online bank or credit union. Getting pre-approved by multiple types of lenders allows you to explore different options so you can start thinking about which lender might be right for you.

Take Advantage of Lender Incentives

Some lenders offer incentives and perks to pre-approved borrowers. For example, a lender may offer to lock your interest rate when you are pre-approved, which can help you save money if interest rates rise before you find a home and apply for a mortgage.

According to Zillow, 25% of buyers who got multiple pre-approvals said they did so because the lender offered to fix their rate or reduce fees.

Make a more competitive offer

In today’s hot real estate market, bidding wars are common and buyers should be as competitive as possible. Some sellers want to see if potential buyers have multiple pre-approvals. In fact, the Zillow report indicates that 18% of first-time buyers and 20% of repeat buyers who obtained multiple pre-approvals did so because home sellers wanted them.

Having multiple pre-approvals can increase your chances of getting a mortgage, ensuring a smooth sales process. If one of your lenders withdraws their pre-approval, you will still have your choice between other lenders.

Financial Changes

Even if you initially only get one pre-approval, if you go through a significant financial change, it’s important to get another pre-approval. For example, if your income changes significantly, such as through a promotion or due to job loss, or if you are able to make a larger down payment, lenders will need to reconsider your application and recalculate the maximum potential mortgage amount.

Getting pre-approved again or pre-approved by additional lenders will give you a more accurate idea of ​​the potential mortgage amount.

Should you be pre-approved by multiple lenders?

While there are many reasons to get multiple pre-approvals, you will also need to consider potential drawbacks. When you apply for pre-approval, each lender will perform a credit check. Repeated credit checks can lower your credit score, which can negatively impact the interest rate you receive on your mortgage. Typically, multiple credit inquiries that occur within a 30-day period are counted as a single inquiry, so the effects on your credit tend to be minimal and temporary.

Additionally, most pre-approval letters are only valid for 90 days, and in today’s real estate market, it’s possible that you won’t enter into a contract on the home within that time frame. If you are repeatedly outbid or you are simply having difficulty finding the right home, you may need to apply for pre-approval again once your initial letters expire.

There is no limit to the number of times you can be pre-approved, but keep in mind the potential impacts on your credit score. Consider researching any lenders you are interested in so you can narrow down your list and then request pre-approval for your top choice or a few top choices.

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