Smart homebuyers know that mortgage rates and terms can vary widely among lenders. While your credit score and history will influence what rates and terms you’re offered, there’s a wide range of flexibility, which means shopping around for a pre-approval makes sense. At the same time, it’s important to minimize credit inquiries to protect your credit rating.
What is Mortgage Pre-Approval?
Mortgage pre-approval is often mistaken for mortgage pre-qualification. Pre-qualification is a process whereby the borrower personally submits their financial information to the lender. Pre-approval is the process whereby the lender does their own vetting regarding the income, debt and credit of a potential borrower. Pre-approvals will involve a hard “hit” to the credit score, due to the inquiry.
Pre-Qualification Doesn’t Guarantee Pre-Approval
Note that just because you are pre-qualified for a certain amount, that doesn’t guarantee pre-approval. So it’s important to go ahead and get the official pre-approval before shopping for a home. This will make you a more attractive homebuyer to sellers.
Mortgage Hard Inquiries Make Credit Scores Dip
When lenders do a true pre-approval inquiry, it will make the credit score dip temporarily. This is an automatic process that happens because it looks like the person is looking to get more credit, which they are. Small drops from hard inquiries are temporary and will bounce back up in a short period of time.
Mortgage Inquiries Don’t Count
However, mortgage inquiries now don’t count on a credit rating, anymore. Lenders know that borrowers will be shopping around for the best rates and terms. As long as the inquiries take place in a short period of time, the inquiries will count only as one single hard inquiry, rather than multiple hard inquiries. In the event that multiple hard inquiries are noted on a credit report, as long as they are all from the same type of lender—a mortgage lender—it won’t count against the borrower.
The bottom line is that it’s wise to get multiple quotes when shopping for a mortgage. It’s more important to have a long-standing history of paying bills on time and managing credit well, than it is to worry about mortgage “hard inquiries.” Your real estate agent will help you to navigate getting multiple quotes in a short time span. Contact your agent to learn more.Share
About the Author:Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.