Shopping lenders is not something that I have done over the course of my 38 years in real estate, but this time something really opened my eyes. By making two complete loan applications, paying for two appraisals, with two different lenders at the same time, we helped our daughter and her husband save over $40,000 over the term of the loan on the purchase of their first home. It had been my custom to be loyal to my local lenders who give good service and fair rates to my clients, I frankly, I never suggested actually making con-current applications with two different lenders at the same time. But in this case, the home purchase was in another state, not Hawaii, and I had no lender loyalties, so shopping loans made sense.
Is this legal?
I did some research and actually found out that since the Dodd-Frank Anti-Predatory Lending Act totally changed the lending game, that shopping loans is absolutely legal and makes business sense. We all shop credit card rates, car loan rates, and practically everything else. Why assume all lenders are the same? I can assure you that after this experience, they are not the same. Is it ethical? If you let the lenders know you are shopping, then they are put on notice. This happens to real estate agents all the time.
What are the implications on your credit report?
What has now changed is that if you are shopping at the same time, running two different loan applications no longer dings your credit report. The lenders used to have the advantage that if you applied with one, they would correctly tell you that if you applied with another lender, your credit score would drop. This is no longer true. There is a window of between 15 to 45 days for concurrent loan applications. See MyFico for details.
In our case, we were helping our daughter and son in law purchase their first home. The purchase was $375,000 with a 20% down conventional loan. Our Realtor recommended a couple of local lenders that he uses and we contacted one, a mortgage banker. We made an online application and the lender came back with a rate quote of 4.55%. Being in the business on Maui, I felt this was quite high relative to even the Maui market as sometimes things cost more here.
My daughter Chloe and her husband Zack just purchased their first home
On a whim, I contacted an internet lender to shop loans and came back with an initial rate quote of 3.99% which was a lot more acceptable. Frankly, the loan costs were less than half of the local lender as well. I was astounded at the rate difference and sent the loan disclosure back to lender #1 and asked if they would be willing to adjust their rate to be more competitive. The answer was, "I don't set the rates, the company does," with no offer of help or assistance. Lender #2, the internet lender, was totally on the ball and gave us some credit counseling to pay off one $1900 credit card that raised the credit score by 30 points and dropped the rate to 3.85%.
The monthly payment difference was $118.27 and over the term of the loan was a savings of $42,577.20!
So if you are a home buyer or even looking to refinance, you may want to consider your options. Investing $600 to save over $40,000 is a great savings. It will take 5 months of savings to pay for the extra appraisal fee and you may have two or more options when it comes time to actually sign your loan documents.
Needless to say, my baby girl and her husband are delighted with the savings and their new farm for their dogs and horses, and hopefully soon some children for Grandpa and Grandma in Hawaii to come visit.
If you are a buyer and need some help and suggestions on how to do this, please call me. It only took me 38 years in the real estate business in Hawaii to learn this new tool, and I would love to share what I learned in this process.
Tracy S. Stice Realtor - Broker firstname.lastname@example.org 808-281-5411