Will Getting Pre-Approved Hurt My Credit?
So, you've found the perfect home and have decided that now is the time to buy it. You can see yourself living there for years to come, but do you know what happens next? You'll need a mortgage loan—and that's when things start getting a little complicated. You want to shop around to get the best mortgage rate, but you’re worried constant credit checks will wreak havoc on your credit score. This article will explain how pre-approval works and how it affects your credit.
Pre-Approval & Credit Scores
When you apply for credit, lenders will do an inquiry into your credit score. There are two types of inquiries, known as hard inquiries and soft inquiries. A hard inquiry indicates that a lender is considering extending credit to you or has just done so. A soft inquiry doesn't affect your score. It is simply information-gathering on the part of the lender. A pre-approval is considered a soft inquiry.
Although pre-approval is not required to purchase a home, it often helps you get a better interest rate and avoid wasting time on homes that don’t meet your needs. A mortgage pre-approval can affect your credit score if you officially apply for the credit. However, any negative effects are minimal, and when you keep your credit card debt low and pay your bills on time, your credit score will bounce back quickly from the ding it suffered.
You Can Shop Around For A Mortgage Rate
Because pre-approvals are not hard inquiries, you can feel comfortable shopping around for lenders. But why shop around? There are two reasons for this. First, not all lenders are the same. Some offer better rates and terms than others. Second, some lenders will require more information from you before approving a loan than others. If you dislike what one lender offers, be bold and shop around for another.
As long as you have yet to sign any contracts with anyone, there's no harm in shopping around for a better deal as it won't negatively affect your credit score. If you apply for several loans within a short period of time, each lender will count each pull as just one hard inquiry. So even if you get preapproved with three lenders, your credit score will decrease by just a few points.
Applying For Pre-Approval Does Not Guarantee That You'll Get A Mortgage
A pre-approval does not guarantee you a mortgage. In fact, a pre-approval from one lender does not mean you'll get a loan from another lender. The pre-approval means that the lender has identified you as a good prospect based on information in your credit report. However, you can still be denied credit later on in the process.
There are many reasons why your lender might reject your application—some of which are beyond your control but others that can be addressed fairly easily.
The most common reason for rejection is bad credit—usually because you've had some late payments or other financial obligations that haven't been paid on time. Some lenders may also look at how much money you make relative to the cost of living where the property is located (i.e., if it's less expensive than where you live now).
Pre-Approval Is A Good Way To Prepare Yourself For The Mortgage Process
You can get pre-approved for a mortgage without jumping through too many hoops. The process is simple, but it does require some legwork on your part.
Getting pre-approved will help you find the right home by giving you an idea of how much home you can afford. It's also helpful when negotiating with a realtor because they'll know exactly what range of price points and locations work for your budget.
Wrap-Up
We hope this article has given you a better understanding of the pre-approval process. We know how stressful the home-buying process can be, and we want to help make it easier for you!
Learn how to apply for a loan or refinance your current one with Military Homespot Lending. Click here for the details.