6 Reasons Homebuyers Get Preapproved by Multiple Lenders — Should You?
Written by
Paige Cerulli
Edited by
Jenna Klaverweiden
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When you’re buying a home, getting preapproved 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 prospective homebuyers get just one preapproval, but, according to a recent Zillow study, about 32% of homebuyers get two or more preapprovals.
While you technically need only one preapproval to shop for a house, there are several reasons it may make sense to get preapproved by multiple lenders.
Also see the four best ways to use your bank when you buy your first home.
Get a Better Rate
According to Zillow’s report, among those who got more than one preapproval, 45% of first-time buyers and 30% of repeat buyers did so because they found a different lender that offered a better rate.
Shopping around and comparing preapprovals allows you to explore different loan structures and terms. For example, some lenders have higher closing costs but offer lower interest rates, while others may advertise low to no closing costs but have a higher interest rate.
When you’re preapproved, sit down and figure out what you’re comfortable paying monthly, whether you want a 15- or 30-year mortgage, and other details that will help you determine what lender’s loan is the best deal for you.
Get Negotiating Power
Getting multiple preapprovals could also give you some negotiating power with lenders. If you get just one preapproval, the lender isn’t incentivized to compete for your business. But if you have multiple preapprovals, a lender will have a better reason to give you their best available terms so that you choose them when it’s time to actually apply for your mortgage.
Explore a Mix of Preapprovals
Zillow’s report revealed that of the buyers who got multiple approvals, 39% of first-time buyers and 30% of repeat buyers got multiple preapprovals 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 preapproved by multiple types of lenders allows you to explore different options so you can start thinking about what lender might be right for you.
Take Advantage of Lender Incentives
Some lenders offer incentives and perks to borrowers who get preapproved. For example, a lender might offer to lock in your interest rate when you’re preapproved, which could 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 preapprovals said they did so because the lender offered to lock in their rate or reduce fees.
Make a More Competitive Offer
In today’s hot housing market, bidding wars are common, and buyers must be as competitive as possible. Some sellers want to see that potential buyers have multiple preapprovals. In fact, Zillow’s report indicates that 18% of first-time buyers and 20% of repeat buyers who got multiple preapprovals did so because home sellers wanted them.
Having multiple preapprovals may increase your chances of ultimately getting a mortgage, ensuring a smooth selling process. If one of your lenders should withdraw their preapproval, you’ll still be able to choose from other lenders.
Financial Changes
Even if you initially get just one preapproval, if you experience a significant financial change, it’s important to get another preapproval. For example, if your income significantly changes, such as through a promotion or because of a job loss, or if you are able to make a larger down payment, lenders will need to reconsider your application and recalculate your potential maximum mortgage amount.
Getting preapproved again, or getting preapproved through additional lenders, will give you a more accurate idea of your potential mortgage amount.
Should You Get Preapproved by Multiple Lenders?
While there are many reasons to get multiple preapprovals, you’ll need to consider potential downsides too. When you apply for preapproval, each lender will perform a credit check. Repeated credit checks can lower your credit score, which could 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 preapproval letters are good for only 90 days, and in today’s housing market, it’s possible that you might not enter into a contract on a house within that time. If you are repeatedly outbid or are simply having a hard time finding the right home, you may need to apply for preapproval again once your initial letters expire.
There’s no limit to the number of times you can get preapproved, but keep the potential credit score impacts in mind. Consider researching any lenders you’re interested in so you can narrow down your list and then apply for preapproval from your top choice or a few top choices.
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