A mortgage involves two rounds of screening: preliminary screening (jizen shinsa, or kari shinsa), done around the time you submit a purchase offer, and formal screening (hon shinsa), done after the sale contract is signed. You can apply for preliminary screening at multiple financial institutions, and in practice that's a common way to proceed. Below, we cover the difference between preliminary and formal screening, and how to think about applying to several lenders.
- In practice, it's common to apply for preliminary screening at multiple financial institutions.
- Formal screening, once you've decided on the property to buy, is generally carried out with a single lender.
- The results of preliminary screening — how much you can borrow and on what interest terms — can differ from one financial institution to another.
- Applying to a very large number of financial institutions in a short period is worth avoiding, as it could potentially affect your screening.
Conclusion
Preliminary mortgage screening can be submitted to more than one financial institution, and in practice that's a common way to proceed. Applying to several lenders before you submit a purchase offer, with the aim of comparing how much you can borrow and on what interest terms, is a useful approach when putting together your financing plan.
The Difference Between Preliminary and Formal Screening
Preliminary screening checks a rough guide to how much you can borrow, based on your employer, income, and other existing debt. Formal screening is the official review carried out after the sale contract is signed, and it includes an assessment of the property as collateral and screening for enrollment in group credit life insurance (dan shin). It's worth understanding that even if you pass preliminary screening, the terms can change, or you may not pass, at the formal screening stage. Sometimes it only becomes clear at the formal screening stage that a health condition prevents you from enrolling in group credit life insurance, so it's important not to relax completely just because you've passed preliminary screening.
Why Apply to Multiple Financial Institutions
Interest terms, processing fees, the details of group credit life insurance, and how easy it is to pass screening all vary between financial institutions. Applying for preliminary screening at several of them lets you compare the amounts and terms on offer and narrow down which lender to take through to formal screening by the time you submit your purchase offer. This is especially useful for people whose likelihood of passing screening can vary a lot — self-employed applicants, or those who've just changed jobs — where applying to multiple lenders widens your options. Since the format of required documents and information differs between institutions, preparing everything together in advance can save you some of the hassle of applying.
What to Watch Out for When Applying
Applying for preliminary screening is generally thought to have little significant effect on your credit information on its own, but it's still safer to avoid applying to a very large number of financial institutions in a short span of time. If you're applying through a lender your real estate agent works with, letting them know which institutions you'd like to try and discussing the approach with them tends to make things go smoothly. Since the amount you can borrow can also be affected by other existing debt (a car loan, a card loan, and so on), sorting this out in advance tends to make the screening process go more smoothly too.
Formal Screening Is Normally With a Single Lender
Once you've decided on the property and signed the sale contract, formal screening is generally carried out with a single financial institution. Using your preliminary screening results, compare interest terms, the details of group credit life insurance, and how well the loan officer has supported you, and decide which lender to take through to formal screening.
Putting It to Use in Your Financing Plan
Comparing the results of several preliminary screenings lets you understand roughly how much you can borrow and which lender's terms are more favorable. That information can be put to use both when setting your budget for the property search and when submitting a purchase offer or negotiating price. Holding preliminary screening results in hand also has the practical benefit of making it easier to demonstrate your financial credibility when you submit a purchase offer.
FAQ
If I fail preliminary screening, can I apply to another financial institution?
Yes, you can. Screening criteria vary between financial institutions, so even if you don't pass at one, you may still pass at another.
Does applying for preliminary screening at multiple institutions affect formal screening?
Applying to several institutions for preliminary screening is not generally thought to work against you at the formal screening stage. That said, it's safer to avoid applying to an extremely large number of institutions in a short period.
Can I apply for formal screening at multiple institutions too?
Formal screening proceeds on the basis of the sale contract for the property, so the normal flow is to narrow it down to a single financial institution.
Summary
Applying for preliminary mortgage screening at multiple financial institutions to compare terms is a common way to proceed in practice. Since formal screening is normally narrowed down to a single lender once the property is decided, use your preliminary screening results as the basis for building your financing plan.