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Could Mortgage Pre-Approval Hurt Your Credit Score?

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If you’ve started thinking about buying a house, you’ve probably heard the term “credit score.” This number tells a bank how likely it is that you can pay back your loans, and it’s based on things like the amount of debt you have, loans you’ve had in the past, and your repayment history. The higher your score, the more likely it is that a bank will lend you money.

 

You’ve earned your score by taking good care of your finances, so you want to be careful about anything that might take away from it. And one thing that can subtract points from your score is a credit inquiry.

 

“But wait!” you say. “Wasn’t I supposed to get pre-approved for my mortgage before I start looking at houses? And doesn’t a pre-approval count as a credit inquiry?”

 

Good question, but when it comes to pre-approval, your credit score is safe. Here’s why.

Not All Inquiries are alike

Soft inquiries just check to see what your number is. They don’t have anything to do with a loan or line of credit. For example, you might look up your own number just out of curiosity, or someone who’s considering hiring you might do so as part of a background check. Soft inquiries don’t affect your credit score at all. In fact, we recommend checking your credit score now so you can see where you stand and have a chance to correct any errors you may find. You can check your score at www.annualcreditreport.com. It’s fast, free, and easy.

 

Soft Inquiries:

  • You check your own credit
  • One of your current creditors checks your credit
  • A company checks your credit to see if you qualify for preapproval offers
  • You get a new job and your employer pulls your credit report as part of its screening process
Download our Free Credit Guide

 

Hard inquiries are different. With these, a lender is checking on your financial history to decide whether to give you a loan or line of credit and what kind of rates to charge you. If you’re looking for loans or lines of credit, it tells a lender that you’re thinking of taking on more debt, which can affect how much you’ll be able to pay back on your mortgage. That’s why these kinds of inquiries can subtract from your credit score—especially if you’re applying for a lot of loans at once.

 

Hard inquiries:

  • You go car shopping and apply for financing at the car dealership and they pull a credit report on you
  • You get a preapproved credit card offer in the mail and respond to the offer
  • You contact your credit card company and request a credit line increase. The company pulls a fresh credit report on you to help determine if they will grant the line increase.

Pre-approvals are treated differently. First of all, you have to make an inquiry in order to get a mortgage. It’s a necessary part of the process, so credit agencies expect you to make an inquiry at this time. And lenders understand that you need to shop for the best rate, especially when it comes to a big loan like a mortgage—but in the end, you’ll only end up with one mortgage loan. Because of this unique situation, there’s a special rule that lets you apply for mortgage pre-approval at several lenders within a 45-day window. As long as your last request is 45 days or less after the first, all of your inquiries will only be counted once to avoid denting your credit score.

Should You Get a Pre-Approval?

If you’re getting close to buying a home, the answer is yes. A pre-approval gives you a good idea of how much house you can afford so you can look within the right price range. It shows sellers that you’re serious—and ready—to buy. And it helps you get all of your paperwork lined up, so once you’ve found the perfect home, you can be confident that you can get a mortgage and close on it much faster.

 

How do you get the ball rolling? An Amerifirst loan officer will be happy to help. We specialize in working with first-time buyers, and we can walk you through every step of the pre-approval process to make things easy.

 

Just remember, if you’re shopping for pre-approvals or already started the mortgage process, this is not the time to apply for car loans, store credit cards, and other lines of credit. To protect your credit score, wait until after you buy your home instead.

 

 

Pre-approve me

 

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5 Reasons Not to Skip Your Home Inspection

You found a house you love—hooray! But with lots of other buyers breathing down your neck, you feel like you need to act fast. To make your offer more attractive to the seller, you might be tempted to skip your home inspection, but here are five good reasons not to! 1.) Not all problems are obvious. It’s easy to spot issues like a crack in the sink or a broken light fixture. But do you know how to recognize foundation problems, termite infestations, outdated wiring, or sewer system problems? Trained home inspectors do and taking the time to have them go over the entire property before you sign the papers can prevent you from buying a headache instead of a home. BOTTOM LINE: The great thing about an inspection is that if you see major problems you’re unwilling to take on, you can change your mind and walk away. 2.) You may not be able to afford the repairs. If you’re like many new homeowners, you may not have much set aside to pay for needed repairs after saving up for your down payment and closing costs. While you may not mind waiting a bit to repaint or update appliances, waiting on problems like leaky roofs, broken plumbing, or infestations will only make them worse, and some issues, like broken furnaces, may need to be repaired right away. BOTTON LINE: You don’t want to go deep into debt to keep your home safe and comfortable. Instead, it’s worth negotiating with the seller to pay for repairs. If they refuse, you can simply walk away. 3. Some problems can make it harder to insure the home. Getting home insurance is essential because lenders need to see an insurance policy before you can close on your home—and of course, you’ll want to have your home protected in case anything goes wrong. However, some companies may decide that your home’s older electrical systems, plumbing, or building materials make it too risky to insure. BOTTON LINE: If essential updates are needed, the only choices are to ask the seller to pay for them, pay for them yourself if you can afford it, or walk away from the deal. 4. Serious issues can affect the resale value of the home. Your home is probably the biggest investment you will ever make. However, if it has major problems, instead of building your wealth, it could turn into a lousy investment that threatens your financial well-being. BOTTON LINE: While a home inspection typically costs a few hundred dollars, it’s an excellent investment in your peace of mind and financial health. 5. Some problems can threaten your family’s health or even your life. This sounds scary, but it’s no exaggeration. Issues like lead paint, black mold, radon (an odorless radioactive gas), or carbon monoxide leaks can cause serious and sometimes fatal health problems. BOTTON LINE: These issues are also easy to miss without a professional home inspection, and it’s simply not worth taking the risk. While it’s not easy to compete with other buyers who are bidding for the house you want, home inspections are one area where you don’t want to cut corners. To protect your physical, financial, and mental health, there’s no substitute for a professional home inspection.

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