Does Mortgage Pre-Approval Hurt My Credit Score?
Reader Question: "I'm confused about the pre-approval process. I haven't looked at any homes yet, but I am filling out a residential loan application for the mortgage planner. I think she just wants to see how much I can afford and go from there. Once this is done, how long do I have to buy something? Does the pre-approval expire after a few months? If I do it again, in say 6 months, will it hurt my credit report? I have heard it does. Also, is it different if I go for a Rural Development loan? I'm hesitant to go through this process and then end not finding."
These are all good questions. Let me start by saying you probably won't do any damage to your credit score by allowing a lender to pull your FICO credit scores. The credit scoring models are designed to allow for that sort of thing, because it's a normal part of the home buying process. If you applied for a bunch of credit cards in a short span, on the other hand, your FICO score might go down (because it shows you are having trouble managing your finances). But the pre-approval process won't affect your score much, one way or the other.
Secondly, I want to address another important issue you touched on in your question. You said the mortgage planner wanted to see how much you can afford. But you are the only one who can determine this. The mortgage lender can only tell you what they're willing to lend you. And that amount may be more than you can afford. People often get approved for mortgage loans that are too big for them -- it happens all the time, unfortunately. So you should be setting your own monthly budget, based on your monthly income and expenses. I recently published an article and video on this very subject, and you can find it here.
Most mortgage pre-approvals are only good for 30 to 45 days. If you don't have a suitable home in that time frame, you can simply renew the pre-approval. It's much quicker the second time around -- the lender just wants to make sure your income hasn't changed, your credit score is still about the same, etc. Your credit score make drop a few points, at the very most. But it's nothing to be concerned about.
Here's what it says on the MyFICO.com website about this subject. These are the folks who created the FICO scoring model used by most lenders today:
"For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping."
I hope this answers your question, and I wish you well in your house hunting process.
These are all good questions. Let me start by saying you probably won't do any damage to your credit score by allowing a lender to pull your FICO credit scores. The credit scoring models are designed to allow for that sort of thing, because it's a normal part of the home buying process. If you applied for a bunch of credit cards in a short span, on the other hand, your FICO score might go down (because it shows you are having trouble managing your finances). But the pre-approval process won't affect your score much, one way or the other.
Secondly, I want to address another important issue you touched on in your question. You said the mortgage planner wanted to see how much you can afford. But you are the only one who can determine this. The mortgage lender can only tell you what they're willing to lend you. And that amount may be more than you can afford. People often get approved for mortgage loans that are too big for them -- it happens all the time, unfortunately. So you should be setting your own monthly budget, based on your monthly income and expenses. I recently published an article and video on this very subject, and you can find it here.
Most mortgage pre-approvals are only good for 30 to 45 days. If you don't have a suitable home in that time frame, you can simply renew the pre-approval. It's much quicker the second time around -- the lender just wants to make sure your income hasn't changed, your credit score is still about the same, etc. Your credit score make drop a few points, at the very most. But it's nothing to be concerned about.
Here's what it says on the MyFICO.com website about this subject. These are the folks who created the FICO scoring model used by most lenders today:
"For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping."
I hope this answers your question, and I wish you well in your house hunting process.
Labels: mortgage
Posted on Friday, June 19, 2009 | Permanent Link
