Different Offers from Different Lenders? Here’s Why

When you shop around for a mortgage loan, you’ll quickly realize that every lender is different. With one, you might get approved for a loan at a 3.5% interest rate with zero closing costs, while another denies your application entirely. 

The whiplash can be pretty shocking if you’re not prepared.

Don’t fret, though: The reasons for these discrepancies are valid. Even more important? Virtually every buyer — no matter how qualified they are — sees their mortgage offers vary at least somewhat between one lender and the next.

Are you getting starkly different offers from the companies you’ve applied with? Did you get approved with one and not another? Here are just a few of the reasons why.

Why you’re getting different offers from different lenders

1. Overhead costs

At the end of the day, running a mortgage company costs money. There are employees to pay, office buildings to rent, lights to keep on, and more — and the more of those costs a company has to cover, the more they need to make off their loans. This is a big reason why the pricing on your loan offers can vary; lenders each have different margins they need to hit in order to cover their costs and make a profit, so they price their loans in a slightly different way from one company to the next.

Another consideration here? That’d be the lender’s use of technology. Generally speaking, lenders who have a lot of technology integrated into their processes have lower overhead costs (a lot of things are automated/don’t require costly labor). This allows them to offer steeper discounts to borrowers and, in many cases, even process loans faster and more efficiently.

2. Risk tolerance

The loan programs a lender offers — as well as the eligibility requirements they set for each of those programs — depends heavily on their level of risk tolerance. Lenders who have the capital to deal with more losses (i.e., non-paying borrowers), can afford to accept lower credit scores and take on riskier loans. Those with less wiggle room in the budget are going to be stricter about who they lend to, as well as what they charge when they do. This can be one reason you may get different offers from different lenders — especially if you have a low credit score or other risk factors.

3. Volume and profit margins

The volume of loans that a lender handles plays a role as well. For one, a lender can only handle so many loans at once. They’re limited by their number of employees, as well as the availability of resources, technology, and other services they need to process and close a loan.

Additionally, volume determines how competitive a lender is feeling, too. If Lender A does 10,000 loans per month and Lender B is new and only does 100, who do you think will try harder to snag your business? More than likely, it’s Lender B.

4. Location

Surprisingly, the location you’re buying in is another important influencer. How much competition is there for mortgage loans in your area? Are there a lot of other buyers and business? Are there a number of mortgage companies and banks that serve the market? The more competition there is, the more lenders will need to sweeten the deal to earn your business.

Another location-related aspect when you’re getting different offers from different lenders? That’d be the state and local laws your lender is subject to. A lender based in California might have higher fees and regulatory costs than one in Idaho, and therefore would need to charge you more for your loan. 

The bottom line about different offers from different lenders: Shop around

As you can see, there’s a lot of reasons your loan offers can vary from one lender to another. Because of this, it’s incredibly important you compare at least several options when applying for a mortgage loan.

This means:

• Getting a loan estimate from at least three to five different mortgage companies, making sure you’re applying for the same type of loan with each (FHA, conventional, 30-year, etc.).
• Comparing your estimates line by line, paying special attention to the interest rate, the cash you need at closing, and the fees you’re being charged.
• Asking the loan officers at each lender about any fees you’re confused or unsure about. You should also let them know you’re also considering other lenders. They may want to adjust their offer once they know you’re comparing your options.

According to Freddie Mac, considering at least five lenders saves the average borrower a whopping $3,000 — so don’t skip this step when you’re ready to buy a home or refinance.

Are you ready to start shopping and curious as to what Embrace Home Loans can offer you? Get in touch with an Embrace loan officer in your area today.