Financing is an inseparable aspect of real estate investing. You may need a bit of cash to finish repairs on that property you've just bought or more to cover shortfalls with the closing costs.
As the economy edges further into recession, any savings you can get in a mortgage deal is welcome. Maybe it's flexible and more friendly repayment terms you're after. Whichever the case, you can find your ideal option with multiple banks or a single lender.
Find out what works for you with this breakdown of the advantages and disadvantages of working with multiple mortgagors or a single lending institution.
Advantages of getting mortgages through the same bank or lender
This is how getting mortgages from the same bank or lender can benefit you:
1. Saves you time
Finding and comparing offers from different lending institutions can be very time-consuming. Additionally, the mortgage application process is very involved, translating to even more time lost. Using a single lender will save you this time.
2. Preferential assessment
When you source all your mortgages from one provider, you're more likely to qualify for financing easily. However, this depends on your loan repayment history and the frequency of using their mortgage facilities.
3. Easier time managing finances
You can easily manage your debt obligations when you get multiple mortgages from a single lender because you can quickly access reports from a single point. The same can't be said when working with multiple banks or lenders.
Going with the same bank or lender for all your mortgages isn’t the best fit for everyone. These are some of the downfalls of going that route:
Possibility of unfavorable rates
Getting mortgages from a single lender means you'll miss out on possibly lower interest rates from other banks or lending institutions. You will also likely pay extra fees if you get all your mortgages through one lender.
Many lenders charge origination fees, application fees, and other miscellaneous charges. You can avoid paying these unnecessary fees by spreading your business around multiple lenders with the most appealing options.
When you choose to get all your mortgages from one bank or lending institution, you automatically lose all the benefits of choice and options. This way, you'll have to put up with whatever policies, rates, or customer service the bank may have, regardless of whether or not they benefit you.
Low loan amounts
Since the prequalification for the loan considers your overall financial picture, each mortgage you take will be counted as a separate loan against your borrowing capacity.
Advantages of getting mortgages from multiple banks or lending institutions
Some of the benefits of working with multiple lending institutions include the following:
1. Preferential interest rates
Each bank or lending institution is different. Some leverage economies of scale or other market advantages to offer lower rates. It's also possible to find lending institutions that are trying to gain market relevance by offering low financing.
2. More negotiating power
Working with multiple banks or lending institutions affords you the luxury of choice. With more options, you can negotiate or, better yet, switch to the ideal option. It's also possible for lending institutions to adjust their conditions just to lure you away from their competitors.
3. Peace of mind
Multiple lenders ensure that you always have a Plan B should something go wrong with your primary lender. If you have all your eggs in one basket, you could face significant issues if your primary lender goes out of business or fails to meet your needs.
Sourcing your mortgage from multiple lenders has its limitations, such as:
Slows you down
It's easy to get caught up with the ‘shiny object syndrome’ as you cycle through the numerous options available in the market. Similarly, the process of finding and applying for mortgage facilities at different banks or lending institutions can take too much time.
It may lower your credit score
Each time you apply for a mortgage, the lender can conduct a hard or soft inquiry on your credit report. In most cases, lenders opt for the hard inquiry. Too many hard inquiries can indirectly lower your credit score and ultimately negatively affect your ability to get financing.
You may not find the best rates
Banks and lending institutions are businesses and tend to extend their best offers, i.e., interest rates, to the most valuable and repeat clients. Working with multiple lenders and banks may work against you if you’re constantly searching and changing institutions.
Practical tips to consider when looking for a mortgage
A mortgage is a crucial part of your homeownership journey. However, a slight mistake can lead to minimal or catastrophic losses. Here's a quick rundown on how to avoid running into losses with your mortgage:
- Shop around. Get quotes from several banks or lending institutions before you make a decision.
- Compare interest rates. Ensure you get the best rate out of all the quotes you receive.
- Consider the type of loan. Choose a loan that meets your needs and budget. Some mortgages may come with unfavorable terms like early payment penalties, which you do not want.
- Read the terms and conditions carefully. The fine print may contain unfavorable clauses that may not be in your best interest. Ensure you understand all the fees and charges associated with the loan before committing to it.
- Get recommendations from friends or family members who have recently taken out a mortgage loan. They can provide unbiased insights and advice you may not get from the lender.
- Get a fixed-rate mortgage, if possible, instead of an adjustable-rate mortgage. While good adjustable-rate mortgages exist, there are better times for them than others. Due to the current runaway inflation, adjustable rates will only go higher, resulting in more debt for you. With a fixed-rate mortgage, your interest rate will remain the same until you complete all repayments.
Should you get all your mortgages through the same bank or lender? The answer lies in your preference. Working with one or multiple lending institutions has its unique set of advantages and disadvantages. In the case of working with multiple lenders, most of the advantages revolve around more options on interest rates and more leverage when it comes to negotiating rates and terms. As for sourcing mortgages from one bank or lending institution, the benefits are more on preferential assessment and rates for loyal customers, minimal time wastage, and an easier time managing the facility. Get in touch if you have any questions or wish to speak to a loan expert about mortgages or financing options.