"How many lenders must I shop to be certain I receive a competitive price?"

If you have access to valid price quotes, three is usually enough. If you don’t have access to valid price quotes, you won’t get a competitive price no matter how many lenders you solicit.

Valid prices are prices that the lender would be willing to commit itself to at the time the price is quoted. Differences in valid prices posted by different lenders are small, which is why you don’t have to shop many lenders. The reason is that 95 percent of all new mortgages today are either sold to Fannie Mae and Freddie Mac, or insured by FHA or VA, so that the federal government assumes virtually all of the risk.

The residual risk to the originating lenders, that they might be required to buy back loans or, at an extreme, lose their right to originate, is small and does not result in large price differences between them. Some lenders are more efficient than others, but price differences from this source are also small.

The challenge faced by mortgage borrowers who want to shop is that most price quotes are not valid, and soliciting them is a waste of time. Invalid prices can be quoted to shoppers with impunity because shoppers can’t say, "Yes, I’ll take it," until the information upon which the price is based has been confirmed, by which time the market will have changed.

Valid mortgage price quotes meet all of the following conditions:

They come from the internal pricing system of the lender, which I call their "posted prices," with no intermediation from loan officers. Loan officers are not bound to quote posted prices, and it is common for them to quote prices below the posted price, called "lowballing," in order to induce shopping borrowers to commit to them.

They are fully adjusted for all loan features that affect the price, such as credit score, type of property, purpose of loan, down payment, etc. The list is a long one. If anything that affects the price is left out, the lender assumes whatever generates the lowest price, which may or may not hold up.

For example, many lenders price loans without asking whether the borrower wants to escrow taxes and insurance. If in fact the borrower does not want to escrow, the price will have to be raised.

They include all price components. This means not only the interest rate and points but also other lender fees that are often left out of price quotes.

They are current as of the time of the quote, not as of the day before. The borrower shopping several lenders must do so on the same day, and to be safe within the same hour of the day, since prices are sometimes adjusted during the day.

Valid price quotes are available on the Internet if you know where to look. Every mortgage lender has a website, but few provide valid prices on them. Most are designed to entice shoppers to identify themselves so that they can be contacted by a loan officer who will give them a sales pitch.

But some lenders provide valid prices on their sites while allowing shoppers to remain anonymous until such time as the shopper elects to contact the lender. These include the seven Upfront Mortgage Lenders that I identify on my website. Shopping them is doable, if a bit of a chore, because each site is programmed differently and the shopper must visit each on the same day to extract the desired price data.

Much the better way to shop is on a multilender website where the site maintains valid prices for multiple lenders, which it presents in one single format for easy comprehension and comparison. There are three of those: mortgagemarvel.com; zillow.com; and mtgprofessor.com, which is mine.

Don’t confuse multilender sites with lead generation sites, such as lendingtree.com and lowermybills.com, which do business with hundreds of lenders. These sites do not collect price data from lenders. Rather, they collect financial information including Social Security numbers from shoppers, which they sell as leads to lender clients.

These lead generation sites first identify the lenders who have indicated an interest in the particulars of a lead, and they sell the lead to the three or four lenders who will pay the most for it. The shopper then gets sales pitches from three or four loan officers who are under strong pressure to lowball the price because that is often the way to win the deal.

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