Understanding Credit Inquiries When Applying for a Mortgage
When you apply for a mortgage, your credit report will likely be pulled multiple times throughout the process. Credit bureaus typically group multiple pulls within a short period into a single inquiry. As long as you avoid making significant changes to your credit during the mortgage process, you should be in good shape to obtain a mortgage with a favorable interest rate.
Mortgage Application and Preapproval Process
I typically recommend starting the preapproval process as soon as you start thinking about buying a home. This allows you to have time to improve credit scores, if needed, or work on potential issues, whether you’re buying or refinancing a home in Washington state.
Determine Your Budget
It’s crucial to determine your budget before you start house hunting.
Frequency of Credit Checks and Their Impact
Lenders check your credit when you apply for a home loan and at least once before closing. Your credit is checked first during pre-approval. A 750 credit score falls into the “excellent” range, whereas a 640 credit score is on the lower end for many mortgage lenders. During underwriting, improving your score can result in better pricing.
During the period from the initial check to closing, it’s possible your credit report may be repulled. A high number of hard inquiries is often seen negatively. However, within a 45-day window, checks are considered a single inquiry for scoring purposes.
Your credit report contains vital information: your history, payment information, and lines of credit. Lenders use your credit history and scores to determine if you qualify and what rate to offer.
Loan Approval and Final Credit Checks
Banks use your credit score to determine your risk – a higher score indicates a better credit risk.
Do they pull your credit twice when buying a house?
The answer is yes. Lenders pull borrowers’ credit at the beginning of the approval process, and then again just prior to closing.
Interest Rates and Risk Assessment
The current mortgage rates for a 30-Year Fixed loan carry a rate of 3.62% and an APR of 3.86%.
Credit Freezing
A credit freeze restricts access to your credit report. While freezing your credit is a good move if you suspect your credit accounts have been compromised, it can be problematic if you need a mortgage to buy a home.
Most lenders will perform a “soft credit inquiry” within seven days of the expected closing date. It is typical for lenders to perform multiple credit pulls throughout the financing process.
Mortgage lenders may get a single report containing your credit reports from the three credit bureaus and the associated FICO® Scores. Your middle credit score is often used for lending decisions.