Is Getting Pre Approved for a Mortgage a Hard Inquiry?
Navigate the complexities of mortgage credit checks. Understand how initial lender inquiries impact your financial standing and how to manage them effectively for home buying.
Understanding your financial standing is crucial when preparing to purchase a home. Your credit history and score significantly influence mortgage eligibility and interest rates. Knowing how actions like seeking mortgage pre-approval affect your credit profile is important.
Understanding Credit Inquiries
When a lender accesses your credit report, it creates a credit inquiry. These are categorized into hard and soft inquiries, distinguished by their purpose and impact on your credit score.
A hard inquiry, or hard pull, occurs when a creditor checks your credit file to assess creditworthiness for a specific application. This happens when you apply for new credit, such as a credit card, personal loan, auto loan, or a mortgage. Hard inquiries require your permission and can temporarily affect your credit score.
In contrast, a soft inquiry happens when your credit is checked for reasons unrelated to a specific credit application. Examples include checking your own credit score, pre-screened offers, or background checks for employment or insurance. Soft inquiries do not impact your credit score.
Pre-Qualification Versus Pre-Approval
“Pre-qualification” and “pre-approval” are often used interchangeably in the mortgage process, but they represent distinct levels of lender commitment and involve different credit inquiries.
Mortgage pre-qualification is a preliminary step providing an estimate of how much you might borrow. It involves providing basic financial information like income and assets, and often entails only a soft credit inquiry. This process helps you get a general idea of your potential budget without impacting your credit score.
Conversely, mortgage pre-approval is a thorough process resulting in a conditional commitment from a lender for a specific loan amount. Obtaining pre-approval always involves a hard credit inquiry because the lender conducts a comprehensive review of your financial documents. This assessment includes verifying income, assets, debts, and checking your full credit report to determine creditworthiness. A pre-approval letter signals to sellers and real estate agents that you are a serious and qualified buyer.
Impact on Your Credit Score
A hard inquiry, such as for mortgage pre-approval, can cause a small, temporary dip in your credit score. A single hard inquiry might lower a FICO Score by fewer than five points. The effect on your score is minimal and temporary, with the impact lasting about 12 months.
For mortgage shopping, credit scoring models recognize consumers apply to multiple lenders to compare rates. To accommodate this, multiple inquiries for the same purpose, like a mortgage, within a specific timeframe are treated as a single inquiry. This “rate shopping” window ranges from 14 to 45 days. This policy allows consumers to seek the best loan terms without being penalized for each credit check.
Managing Mortgage Shopping Inquiries
Approaching the mortgage application process strategically minimizes the impact of inquiries on your credit score. Obtain mortgage pre-approval when serious about purchasing a home and ready to actively search for properties. Pre-approval letters have an expiration period, often 60 to 90 days, so time your application close to when you plan to make an offer.
To effectively shop for mortgage rates while managing credit inquiries, gather all necessary financial documents in advance. Apply to all desired lenders within the designated rate shopping window, up to 45 days. This concentrated approach ensures multiple hard inquiries for a mortgage count as a single inquiry, limiting the overall effect on your credit score. During this period, avoid applying for other types of credit, like new credit cards or auto loans, to prevent additional hard inquiries.