Can I apply to several mortgage lenders simultaneously?

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I have bad credit and am worried that my mortgage won't be approved. Is it okay to apply with more than one lender in case this one turns my loan down? - Dennis, Atlanta, Ga.

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Dear Dennis,

There is no law against applying for a mortgage with more than one lender. If you have credit problems, it's understandable that you'd be worried about getting declined and want to hedge your bets. However, there is a right way and a wrong way to go about this.

Multiple applications, the right way

You want to waste as little time and money (yours and the lenders') as possible. However, you also want to maximize your chance of getting approved for a mortgage with bad credit. You can do both: lenders are often willing to give your refinance application a "trial run." Just explain that you don't want to incur the expense of a property appraisal until you know that you are eligible for financing. If you want to buy a home, apply with one or more lenders for "credit approval" before you go property-shopping. People do this all the time, so it's no big deal.

Plan on paying for several credit reports if you apply with several mortgage lenders. With all those lenders pulling your credit report, will it cause your FICO score to drop? Not if they all check your credit within a 14-day period. FICO treats multiple inquiries by mortgage lenders within that short time-frame as a single inquiry for scoring purposes.

Once the lender(s) approve your application, you'll get a list of conditions that must be met before your loan can close. For example, you may be required to provide bank statements showing that you have enough money for a down payment. You might be asked to provide a copy of a divorce decree to prove that you don't have any child support obligations. Clear these conditions before authorizing and paying for an appraisal. The only remaining condition should be a satisfactory appraisal on the property.

At this point, get up-to-date mortgage rate quotes from the one or more lenders who have given you credit approval. You may want to lock in your mortgage rate with your chosen lender.

Then, the important step: Cancel your application with the other lenders. It's not fair to keep them working for free. Pay for your credit reports and any other costs the lenders have incurred on your behalf.

Multiple applications, the wrong way

There is a wrong way to make multiple mortgage applications. I have seen some applicants apply with a dozen lenders and then be unable to make up their minds about which lender will complete the deal. There are underwriters, processors, title and escrow employees and loan officers galore -- all working on your loan to the bitter end.

In one case, I showed up to a closing to find that my client had multiple applications with other lenders, and there were three sets of loan documents for the same mortgage! Not only is that unfair to the lenders involved, it also makes other applicants' loans take longer to close because resources are being misdirected.

You may end up on the hook for several appraisals (hundreds of dollars each) as well as application fees, processing fees, rate lock expenses and other charges. In this case, being nice is also less expensive than being nasty.

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