Your residential property is one of your most important investments. Think of applying for a home loan like ‘shopping’. You look at different options and then choose the one that suits you best. So it is not very wise to turn to only one lender and stick with his closing costs and possible credit. You might be missing out on better, more economical options. However, there are certain pros and cons to applying for two home loans as well.
If you are looking for answers to whether you should apply for two home loans or not, the disadvantages and advantages of multiple homes, etc., then you should read the details provided below:
Why should you even consider applying for multiple home loans
When you apply for multiple mortgage loans, you get to compare the costs and interest rates of various offers. It gives you a good idea of what the general rates and costs are in mortgage loans. Another advantage of this process is that you get to negotiate with your lenders since they have competed with each other.
In the 2000s, there was a significant difference in rates and fees from company to company. Now, some laws limit how much the mortgage companies are compensated, so the rates pretty much the same in all companies. But there is still some variance in the rates today. For instance, you might think of the interest rate savings as quite small initially, but these small savings could translate to quite a big amount throughout 15 to 30 year-long mortgage loans.
One factor to consider is how the lenders structure their loans. You will notice that lenders, who offer a higher interest rate, also have increased closing costs. And lenders, who offer lower closing costs, tend to offer higher interest rates. There is an evident inverse relationship between the closing costs and interest rates.
If you are planning on keeping your mortgage for numerous years, you should look for loans with lower interest rates and higher closing costs. This will let you save on interest rate payments which will eventually cancel out or surpass higher closing costs. Similarly, if you are planning on paying off the loan in a few years, you might as well look for offers that have low closing costs and higher interest rates. This is better because you are unlikely to keep the mortgage long enough to take advantage of interest rate savings.
It is also advisable to keep in view various Good Faith Estimates (GFEs) to be able to compare and choose the rates that suit you best. Another good trick you can use with two home loans is to play one lender against the other. So if you have two offers that offer the same closing costs but with different rates. You can negotiate with the lender offering a higher rate. You might get a lower interest rate from them. Then you can use that offer to negotiate with the lender who offered the lower interest rate previously.
What are the cons of applying for multiple mortgage loans
When applying for a mortgage loan. You are not made an offer by a lender until they have seen your credit report. For that purpose, they make a credit inquiry before they make you an offer, with 3 bureaus. The problem with that credit analysts have observed a drop in credit scores if too many inquiries made by one individual. They make inquiries into an individual’s credit account. Every time they do that, it affects the credit score negatively. The extent to which this fall in the credit score occurs not known since these models are very closely guarded.
Other than this, credit bureaus sell your information to mortgage lenders to make extra revenue. This activity is termed a ‘Trigger Lead’. What happens is that when you apply for a mortgage, a credit pull takes place. The lenders buy lists of people whose credit recently pulled, from the bureaus. These mortgage companies then call these people for their sales pitch. The more applications you submit, the more susceptible you are too numerous sales calls.
Do market research before you apply for two home loans.
It is preferable to conduct market research and narrow it down to 2 or 3 lenders. You can then see if they can match your terms. And make the final decision to choose the lender who offers the best plan for you.
MetroYak offers open and wide-ranging access to information, news, latest stories, photographs, and videos. You can share your views in the comments section below or contact via email hello@metroyak.com
