Can I lock rates with multiple mortgage lenders?

Peter Miller
Peter Miller
The Mortgage Reports Contributor
January 21, 2021 - 7 min read

Applying with multiple lenders is smart

When shopping for a mortgage, you’ll compare mortgage rates, select a provider and start your loan application. But should you apply with more than one mortgage lender? There are several reasons that it might make sense to do so:

  • To secure at least one mortgage approval
  • To compare offers and get the best mortgage rate
  • You may discover that you don’t like your lender

Here’s more about the pros, cons, and process of applying with more than one mortgage lender.


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Why you should work with more than one mortgage lender

Working with multiple mortgage lenders can save quite a bit of money on your home purchase or refinance. Although the specific savings will differ depending on factors like your credit score, debt-to-income ratio, loan terms, and down payment (if you’re a home buyer).

A study from the Consumer Financial Protection Bureau (CFPB) found that borrowers who did not comparison shop for a mortgage loan, lost, on average, $300 per year and thousands of dollars over the life of the loan.

If you could lower your monthly mortgage payments and save up to thousands of dollars over the course of your 15- or 30-year loan term, wouldn’t it make sense to try?

“Another benefit of working with multiple lenders for a home purchase is when one offers a slightly better rate, but you’re unsure of their timeframes and ability to complete underwriting by closing,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

That can be especially important in a hot housing market like today’s, where timing and speed are often key.

A mortgage calculator will help you estimate the cost of borrowing and your monthly payments at different interest rates. It’s a practical exercise that will help you see how rates affect the price tag of your home loan.

Can I lock-in rates with multiple lenders?

Shopping around is not the same as locking rates with multiple lenders. You’ll want to compare quotes from more than one company, but only lock a rate with the one offering the best deal. That’s because a rate lock is more of a commitment on your end.

There isn’t anything stopping home buyers who want to lock-in rates with multiple lenders. But if you go this route, the fees related with two or more loan applications can easily negate the money saved with a lower rate.

And, if you back out of the underwriting process, you’ll have to begin the loan approval process anew with a different lender — all before your loan closes.

So compare what you’ll save with a new lender’s rate against the costs associated with a new loan application. You’ll be responsible for paying another round of appraisal fees, credit report fees, and any in-house origination or underwriting fees.

Plus, if you miss your closing date, then the seller has the legal right to keep your earnest money.

Your chances of mortgage approval vary by lender

Different lenders have different standards. Your mortgage application might not get approved by one lender, but you may qualify with another.

At first, it may seem odd that you can get approved for a mortgage loan by some lenders but not by others. After all, isn’t a VA loan from one lender the same as another? And the same with FHA financing and conforming mortgages that must meet Fannie Mae and Freddie Mac standards?

In each case, the basic loan requirements for a mortgage application are the same, but lenders may impose additional qualification requirements. They call these added requirements ‘overlays,’ and they are common.

The Department of Veterans Affairs, for example, explains that it has “no minimum credit score requirement. Instead, VA requires a lender to review the entire loan profile.” While VA loans may not have a credit score requirement, a lender who offers VA financing might. One lender may accept VA borrowers with a 640 credit score, while another requires 660.

Your chances of loan approval often come down to income and debts, credit score, and financial security and assets.

Why your credit report is crucial to approval

Understanding your credit score is an important step in the loan approval process. Before you even begin requesting rate quotes, consider pulling free copies of your credit report with the three main credit-reporting agencies: Experian, Equifax, and TransUnion.

Review your reports and dispute any errors or duplicate information. Avoid opening new personal loans or credit cards, and pay down as much high-interest debt as possible in the months leading up to your mortgage application.

Improving your credit score could be the key to unlocking loan approval.

Loan programs affect approval, too

If you’re concerned about approval of your loan application because of your credit rating or debt-to-income ratio, you may gravitate toward FHA financing.

FHA home loan programs are known to be more flexible. However, the mortgage insurance premium (MIP) for these loans can be considerably more expensive than that required for a Fannie Mae or Freddie Mac mortgage.

You may, in that case, want to apply for both programs.

If you get the Fannie Mae loan, and it turns out to be less expensive, congratulations. And if not, you still have the FHA loan to fall back on. Kind of like college applicants going after their dream school but also applying to a “safety school” in case they don’t get into their preferred institution.

You need to compare multiple rate quotes to get a better rate

Everyone wants to get the best mortgage rate and terms. That said, a little caution is in order.

The “best rate” depends on a lot of factors. The best rate for Ms. Green may be different from the best rate for Mr. Johnson. This can happen because Ms. Green has a better credit score, a larger down payment, more cash savings, and is financing with a fixed-rate loan instead of an adjustable-rate mortgage (ARM).

Additionally, fluctuations in available mortgage rates are constant and should be expected by home buyers.

Mortgage shoppers need to look for a lender who can deliver the best rate available for the borrower at the time of application. You can’t know the best available rate without checking among several lenders.

Don’t forget to compare closing costs

In addition to your mortgage interest rate, you need to look at loan closing costs. Some lenders simply charge more or less than others, even when rates are identical.

Check the annual percentage rate (APR) on the official Loan Estimate form to compare the combined interest rate and closing costs of your new loan.

Mortgage rate lock vs float down option

A rate lock agreement guarantees an interest rate with your mortgage broker or lender, as long as your home loan or refinance closes before the rate lock period expires — often 30 to 60 days.

It’s a commitment between a home buyer and lender. The lender agrees to underwrite the loan at a specific rate, even if the market rate increases. On the other hand, the home buyer commits to borrowing at the agreed rate, even if a lower interest rate comes along before the closing date.

Sometimes the home buyer is charged an upfront rate-lock fee, but often only if the period of time extends beyond 30 days. In-house fees will depend on the loan process of any particular lender. So be sure to understand their rate-lock policy.

Float down options

By contrast, a float down option allows buyers to take advantage of a lower interest rate after they’ve already locked-in. It’s a handy provision, but it can cost you.

Float-down options frequently cost between 0.5% to 1% of the loan amount. So on a $400,000 mortgage loan, a float-down could be an added expense between $500 to $2,000.

Float down agreements vary by lender, but, generally, if the rate falls at least 0.125% to 0.25% before closing, you can get the lower rate. Others may allow you to lock in a better rate during escrow, should rates drop before your closing date.

Again, make sure you review the details of your agreement; they can differ among lenders.

Is it unfair to shop around for a better rate?

It is sometimes argued that by shopping your rate around with multiple lenders, you are forcing loan officers to work for free.

Offering quotes and underwriting mortgage loans is how lenders make their money, and it’s a risk that comes with the real estate business. Alternatively, if you had to accept the first mortgage offer you got, lenders would have no incentive to extend low rates and exceptional loan terms.

Furthermore, mortgage programs, closing costs, origination fees, and service can vary significantly from one lender to the next. Requesting more than one loan approval allows you to test the waters with lenders and compare Loan Estimates.

Shopping around for better rates is a proven strategy, too.

The CFPB says that if just 20% of home buyers and homeowners would get one extra quote, they would collectively save $4 billion a year because of increased competition between mortgage lenders.

Making loan providers compete is the best way to get a better rate.

Tips for working with different lenders

Shopping for your mortgage isn’t difficult, but it can take some time. Knowing what to expect when you get quotes from multiple lenders will help the home buying process go more smoothly.

  • Gather details and documents: You’ll need to provide lenders with information about your personal finances, including proof of income, employment history, and other particulars. So gather paperwork like bank statements and pay stubs. This checklist will get you started
  • Request quotes from different lenders: The exact number will depend on your preferences, but research from Freddie Mac suggests that buyers who searched for a lender at least five times got lower rates than buyers who only compared three quotes
  • Get loan preapproval: Getting preapproved by a lender doesn’t mean that you’re committed to working with them. You can switch lenders later if you need to. But having a loan preapproval letter in-hand tells sellers and real estate agents that you’re a serious, qualified buyer

Consider a mortgage broker

Alternatively, you can have a broker shop for you. Retail loan officers work for one lender, while mortgage brokers look for financing among many lenders.

For some borrowers, the lending process may be made faster and more understandable by working with a mortgage broker; someone familiar with the real estate marketplace and how it works.

If you’re going to check with several mortgage sources, it may makes sense to include a mortgage broker into the mix.

Today’s current mortgage rates

Whether you’re a first-time buyer or a homeowner looking for refinancing, lower interest rates are still available.

So regardless if you opt to lock–in a rate on a new loan or choose a lender with a float down option, shop your refinance or home purchase loan with multiple lenders to get a better rate on your loan.