Can you work for two mortgage companies at the same time

NEVER put all your eggs in one basket, right?

Well, when it comes to your mortgage that advice could cost you.

Shopping around and doing your research when it comes to taking out a home loan is smart, especially in a competitive market when banks are competing fiercely for your business, but when it comes to applying for a mortgage, do not apply to several lenders at once.

Submitting applications to multiple banks will affect your credit score and potentially get your application declined.

“Shopping around is a negative behaviour for all credit applications — cards, personal loans and home loans. It implies that the borrower is a higher risk because they are having to go to lots of different lenders to try and get credit,” Luke Keller, CEO of getcreditscore.com.au told news.com.au.

Borrowers do it because we like to “hedge our bets”, explained Mr Keller, or so we have a back-up plan. But this may be the one time where putting all our eggs in one basket is a good idea.

“They think if they apply to three [lenders], hopefully one will come through. The other reason is they will apply for one product which has a really, really good rate. But those lenders are targeting people with really good scores and really good backgrounds.

“So consumers do it in case they don’t get that loan with the really good rate; they have something to fall back on. What a lot of people don’t know, especially with home loans, is if you go onto a comparison site and sort home loans by interest rate, the one at the top is often looking for a very specific person and there is a very good chance that you don’t actually match that criteria.”

Vache Vartanian, a mortgage broker and founder of MR LEND, said a rising number of consumers aren’t even doing it intentionally.

He has had many clients burned by multiple applications showing up on their credit file because of the rise in online lending.

“I have had several clients who have gone to online lenders, such as clickloans.com.au or loans.com.au, and they intend to just make an inquiry but they don’t realise that it is an application,” Mr Vartanian told news.com.au.

Even if a borrower doesn’t submit supporting documents, such as pay slips, the “application” will still show up on their credit file, and it won’t specify whether it was just an application or whether it was declined.

“You have to put yourself in the mind of the credit officer. Their job is to assess risk so they would see that and be asking why have they applied [for different home loans] and assuming they would have been declined,” Mr Vartanian said.

Diane Tate, executive director of retail policy at the Australian Bankers’ Association said this is because banks have to abide by “strict lending obligations” so that they meet responsible lending criteria.

“It is an application but by nature of you applying a lot of times, that could be a signal that you haven’t got credit,” she told news.com.au.

“It is one part of all the information [banks collect] about an application but it is important for customers, when they are going for a loan or a credit card, that they understand their credit file.”

WHAT EXACTLY IS A CREDIT SCORE AND CREDIT FILE?

A credit score is a rating of your creditworthiness. It is expressed as a number that represents the information contained in your credit file.

Your credit file records certain dealings with credit providers and contains a history of overdue debt, defaults and credit applications. Y ou will have a credit file if you have applied for a credit card, loan or even a mobile phone plan within the past five years.

Basically, your credit score attempts to give an illustration of how financially responsible, or risky, you are and this is important because lenders will access it as a part of their application assessment to decide if they’ll lend to you or not.

“A credit score is important because it gives any bank access to your credit history,” Mr Keller said.

There are a number of companies which can provide you free access to your credit score, and Mr Keller said it was pleasing to see more and more Australians are actually using these services to check where they stand before applying for or negotiating a loan.

Consumers checking their scores through getcreditscore.com.au has more than doubled over the past five months — from 350,000 in June to 750,000 in November.

But Mr Vartanian said there is still a big knowledge gap when it comes to credit files and what affects them, especially when consumers are being actively encouraged to shop around and not be complacent with a bank.

“Maybe lenders, or ASIC, need to have something that warns borrowers who are inquiring or applying online for home loans that this will hit their credit file,” he told news.com.au.

SO I’VE SCREWED UP, WHAT NOW?

Luckily, blips on your credit score aren’t going to haunt you forever. If you have made the mistake of applying to several banks for a home loan, you can redeem yourself.

“The shopping around element isn’t going to affect your score that badly,” Mr Keller explained.

“It is one of the minor offences and the best way to fix it is just over time.

“All that information stays on your file for five years but the shopping around aspect tends to wear off if you decrease your activity.

“If you have applied to multiple different banks within a month, stay quiet for three or four months and [your credit score] will start to repair and come back up again.”

When it comes to more major offences — such as loan defaults — it could take a little more time and effort to clean up your score, but it is still possible.

If that is you, Mr Keller said the way to fix it is to set up direct debits to ensure you pay bills on time, talk to your lender to structure any payments you aren’t keeping up with, and consolidate your debts in order to pay off any loans faster or to reduce fees associated with several individual loans.

Applying to multiple mortgage lenders allows you to compare rates and fees to find the best deal. Having multiple offers in hand provides leverage when negotiating with individual lenders. However, applying with too many lenders may result in score-lowering credit inquiries, and it can trigger a deluge of unwanted calls and solicitations.

There is no magic number of applications. Some borrowers opt for two to three, while others use five or six offers to make a decision.

It's difficult to know you are getting the best deal if you have not compared it with other offers. With laws limiting how mortgage companies are compensated, there is less variance in rates and fees from company to company than there was in the past—during the 2000s, for example. However, subtle differences remain, and what looks like small interest rate savings now could translate to a large dollar amount over 15- or 30-year mortgages. Use a mortgage calculator to compare how different rates would impact your monthly payment.

Moreover, different lenders structure loans in different ways with regard to rates and closing costs, which carry an inverse relationship. Some lenders ramp up closing costs to buy down your interest rate, while others that advertise low or no closing costs offer higher interest rates in exchange.

• Applying to multiple lenders allows borrowers to pit one lender against another to get a better rate or deal. 
• Applying to multiple lenders lets you compare rates and fees, but it can impact your credit report and score due to multiple credit inquiries.
• If you’re going to keep a mortgage for many years, it’s best to opt for a lower rate and higher closing costs. If you plan to refinance or pay off the loan after a few years, it’s best to keep closing costs low.
• There is no optimal number of applications, though too few applications can result in missing out on the best deal, while too many might lower your credit score and besiege you with unwanted calls.

Looking at multiple good faith estimates (GFEs) side by side lets you compare rate and closing-cost scenarios to pick the best one for your situation. It generally makes sense to pay higher closing costs for a lower interest rate when you plan to keep the mortgage for many years because your interest rate savings eventually surpass the higher closing costs.

If you plan to sell or refinance after a few years, it is better to keep closing costs as low as possible because you are not paying off the mortgage long enough for interest rate savings to add up.

You can even play one lender against another when you have multiple offers. Suppose lender A offers you a 4% interest rate with $2,000 in closing costs. Then lender B comes along and offers 3.875% with the same closing costs. You can present lender B's offer to lender A and try to negotiate a better deal. Then, you can take lender A's new offer back to lender B and do the same thing, and so on.

If you are comparing lenders with each other, try to get an official loan estimate from each one that details all the terms, rates, fees, and points for each loan. When possible, try to compare loans with the same points. Lenders have been known to mislead borrowers with where they place their fees and points to make their deal seem better than a competitor's.

For a lender to approve your mortgage application and make an offer, it has to review your credit report. To do so, the lender makes credit inquiries with the three major credit bureaus.

Credit analysts note that too many inquiries can lower your numerical credit score. Hard inquiries in particular stay on your report for two years. Most scoring models, such as FICO and VantageScore, make inquiries into your credit account. These models are closely guarded, so few people know the exact extent to which inquiries matter. Fair Isaac Corporation (FICO), the creator of the FICO model, states that multiple mortgage inquiries that occur within 30 days of one another do not affect your FICO score.

In the current hot housing market, it is likely that borrowers will have to go through multiple rounds of credit checks as buyers get pre-approved, submit offers, and close on homes over several months instead of 30 days. Though multiple checks from mortgage companies over several months may be excluded by your lender for your housing purchase, it may lower your credit score for the following two years.

Another nefarious secret that many borrowers do not know is that credit bureaus make additional revenue by selling your information to mortgage lenders to which you have not applied. This is known in industry parlance as a trigger lead. Submitting a mortgage application triggers a credit pull, and mortgage companies pay the credit bureaus for lists of people whose credit was recently pulled by mortgage companies.

Knowing that these people seek mortgages, the companies' salespeople call down the list and pitch their services. The more lenders you apply with, the more likely it is that your information will be sold as a trigger lead, which can lead to a barrage of sales calls.

You only need one mortgage pre-approval letter. If you've had a recent change in financial circumstances such as a raise or inheritance that changes your income, credit score, or down payment amount for the better, it may be worth getting a newer, stronger pre-approval letter.

There is no real limit to how many times you can pull credit for a mortgage. Most borrowers have their credit pulled for pre-approval and again at closing to make sure it hasn't dropped. On occasion, lenders may pull credit again during the underwriting process if a long period of time has elapsed since your pre-approval or if they are verifying that you completed something such as paying off a debt, or if a dispute was removed.

Generally, multiple inquiries made within 30 days are counted as one inquiry. If your lender pulls your credit multiple times outside of a 30-day period, it may count on your credit report as a hard inquiry.

Technically, yes, but it is not a very courteous thing to do and you may be on the hook for costs such as credit-check and appraisal fees from each lender, depending on their policies. Originating and underwriting a loan takes a lot of time and care from several dedicated professionals. Locking rates with a lender implies that you are going through with the loan, which is how they get paid. If you cancel at the last minute, they have wasted their time and that company or lender may not be willing to work with you in the future.

Yes. Many online lenders, local banks, and mortgage brokers list their rate charts transparently on their websites. If you prefer to call around, clarify in your phone call that you are only consenting to a soft credit check. Not everyone you speak with will be willing to give you rates over the phone, but there are many who will.

Too few applications can result in missing out on the best deal, while too many might lower your credit score and besiege you with unwanted calls. Unfortunately, there is no Goldilocks number that represents the right number of mortgage lenders to which you should apply. Some borrowers apply with only two, feeling certain that one or the other can provide the ideal loan, while others want to hear from five or six banks before making a decision.

Perhaps the best approach to getting a mortgage is to start by conducting market research to get an idea of what constitutes a great deal in the current lending climate. Next, contact two or three lenders and challenge them to match or beat the terms you have established. If you review their offers and still believe a better deal exists, apply to additional lenders as necessary but understand the established drawbacks of doing so.