Winnie F, Home Buyer in Temecula, CA

Will a canceled pre-approved loan affect my credit score?

Asked by Winnie F, Temecula, CA Thu Jan 15, 2009

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Nope! Pre-approvals are not reported to credit bureaus. -Steve
0 votes Thank Flag Link Thu Jan 15, 2009
Hi Winnie, to make sure you are completely clear regarding your question:

If YOU unilaterally cancel a Loan Pre-Approval, whether it has been completed or is in-process, this action WILL NOT negatively affect your credit score. Furthermore, Brokers/Banks/Lenders DO NOT report failed loan applications to the 3 Credit Bureaus (Equifax, Experian, TRW). Speaking of which, be aware that lenders us a "tri-merge" credit report, typically using the middle score for qualifying. For more Credit Score tips and understanding see: http://docs.Steven-Anthony.com/SAR-YourCredit.pdf

Technically, within three days of receiving a full application, a mortgage Broker must provide a Good Faith Estimate/Truth-in-Lending form, or a Statement of Credit Denial (SOD) specifying why you did not qualify. The SOD cancels the Pre-Approval process, which is only sent to the loan applicant. See a SOD example here: http://docs.Steven-Anthony.com/SODexample.pdf

Please also note a that a Lender's Pre-Approval is in fact a CONDITIONAL commitment, being subject to an Appraisal, clear title, and the final LOCKED interest rate (since this can change debt-to-income ratio) and overall final Underwriting of your file (for prior-to-documentation and prior-to-funding conditions).

What has been said regarding the 30-day period is true; within this timeframe your credit score will not be negatively affected, outside if this window it will (5 to 10 pts per pull).

-Steve
1 vote Thank Flag Link Fri Jan 16, 2009
Winnie, In reality pre-approvals don't mean much. This is why many Sellers are requiring buyers double app with a lender they know. There is nothing to cancel on a pre approval. A pre approval is not even a commitment, it just means you have the initial qualifications to get the loan.
Web Reference: http://www.homebuysblog.com
0 votes Thank Flag Link Sat Jan 17, 2009
Winnie,

Pre-Aprovals only mean that the lender checked out your credit and talked to you about your income, maybe even asked to see pay stubs or a tax return.

Pre-Approvals are not reported to the CRAs and never can be as there would be absolutely no permissible purpose. The fines and penalties for inaccurate credit reporting. Slam dunk win in a court case for fines as again there is no permissible purpose.

With that said there was an inquiry made to your credit, that inquiry will show and multiple inquiries will ding your score if you have too many unless you are out shopping for financing and your credit is pulled in a short time span; it will not impact your score unless this starts taking place over a couple months.

Many REO purchases and Short Sale Seller are requiring buyers double app with their preferred lender. This is causing credit to be pulled more over larger periods of time. Some buyers will lose some FICO over this practice.

One last warning. There is only one website on the internet that provides a REAL FICO score and that is myfico.com. Any score you purchase off the internet that is not from myfico.com is a FAKO. The algorithm that calculates the FICO score is a formula as secret as the formula for Coke. So don't waste your money on FAKOs.

I have written several posts on credit on my Blog:

http://homebuysblog.com/2008/04/19/in-introduction-to-credit/

http://homebuysblog.com/2008/04/21/three-reasons-why-free-cr…

http://homebuysblog.com/2008/05/05/guerilla-credit-repair-i/

http://homebuysblog.com/2008/08/22/reduce-your-junk-mail-ryo…
Web Reference: http://www.homebuysblog.com
0 votes Thank Flag Link Fri Jan 16, 2009
If you never closed on loan took possession NO, however having your credit pulled again will drop scores by approx. 5 to 10 pts. GREAT QUESTION
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Fri Jan 16, 2009
Winnie,

All credit inquiries for the same type of loan (mortgage, car, credit card, etc.) are counted as only one inquiry when made within a month's time. You should be good to go! Plus, interest rates are phenomenol! I have a Buyer closing escrow today at 4.875% fixed for 30-years!

I may know of a great deal "off-market" in a newer Single Family (2-story) detached tract in west Santa Paula, a 3+2.5 built in 1989 on a cul-de-sac, with over 1800 sf. for $360,000. Contact me if it's something you'd be interested in hearing more about. And Happy house Hunting!
0 votes Thank Flag Link Fri Jan 16, 2009
I canceled the pre-approved loan last year per experts stating "it's not a good time to buy" and/or "buy next year"... Now, I'm planning to go back to the same lender plus get another pre-approve loan from another lender for comparison, is that a good idea?... Thanks for all your inputs..
0 votes Thank Flag Link Fri Jan 16, 2009
Hello Winnie,

Although Steve's answer is somewhat correct, the heart of the answer lies in the "process" rather than the "result". Was the Pre-approval cancelled by YOU or your lender? Did the pre-approval expire? Did the lender later discover some information about your credit history that initiated a cancellation (by them)?

Pre-approval is a lender's actual commitment to lend to the potential homebuyer. The pre-approval "process" is more detailed and thorough than the pre-qualification process. The potential homebuyer will be asked to complete a mortgage application, and some lenders do charge an application fee for this process. The lender will verify all of the information provided on the mortgage application and review the buyers credit report. Pre-approval means that the lender has contacted the homebuyer's employer, bank and various other sources to verify all claims of earnings and assets. After everything has checked out, the borrower receives a letter stating that they have a mortgage pre-approved for a certain amount. By receiving pre-approval from a lender the homebuyer can speed up and improve their chances of reaching an agreement with a seller. Pre-approval is a lender's actual commitment to lend to a potential homebuyer. Multiple credit inquiries for the same purpose within a short period of time should not, by themselves, affect your FICO scores.

I would question the source or reason for it being cancelled. Good luck in your homebuying process. It's a difficult challenge at best in today's tight lending environment.
0 votes Thank Flag Link Thu Jan 15, 2009
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