With a mortgage preapproval letter in hand and a down payment sitting pretty in your bank account, you’ve set off to purchase the home of your dreams. But after experiencing the bitter letdown of being outbid time after time, you’ve come to realize this whole process might take far longer than you originally thought.
Suddenly, your Boy Scout–level preparation to get that preapproval letter could put your credit score in a precarious position. Here’s why: Getting a preapproval requires a “hard pull” on your credit, and too many hard pulls can impact your ability to score the best loan terms once you are officially able to move forward with a mortgage on that home for sale in Sarasota, FL.
To avoid this credit stress, follow these tips to mitigate the risk and protect one of the most important assets you have — your credit health.
First things first: Get prequalified and then get preapproved
To avoid the disappointment of falling for a home your current financial situation can’t sustain, it’s important to get prequalified. This process is pretty straightforward — a lender takes a look at your overall financial picture and determines your purchasing ability based on the information you provide. (No hard pull on your credit necessary.)
Once you understand what you probably qualify for and you’re ready to start looking at houses, you should then move forward with the preapproval process, suggests Matt DeLuzio, a loan officer with AmeriFirst Financial Inc. in Denver.
“There are many factors that can put a full approval at risk, therefore it is much better to find a lender that can get an actual preapproval done. When this happens, your lender will complete all necessary verifications, run the file through underwriting, and issue a mortgage loan commitment,” DeLuzio advises.
Shop lenders within a certain time frame
Just as you would shop around for the right car loan, it’s important to shop around for a preapproval. It’s expected that you will look for the best lender and rate, therefore credit-reporting bureaus are more lenient with multiple credit pulls within a certain time frame.
According to FICO, the time frame to keep inquiries contained is anywhere from 14 days (older scoring models) to 45 days (the newest scoring models). All inquiries during the time frame laid out by either scoring model would be treated as just one inquiry, a protection offered to mitigate the risk of a massive credit score drop.
Lauren Rowland, a Denver-based real estate agent with Kenney & Company, stresses the importance of starting early and continuing to look for the right lender. “Generally speaking, many clients are able to identify and close on the property within the window of time that their preapproval is good for,” Rowland says. “That being said, during the process of looking, they may identify a lender who can offer them a better rate and select to get preapproved again.”
Know how long your credit reports last
Credit reports are good for 120 days after they are pulled. If a buyer does not close on a home within that period, the report must be pulled again. According to DeLuzio, this could have a significant impact on the interest rate and loan program the buyer can qualify for.
“If a buyer is going to go past the 120 window,” he explains, “it is recommended that the credit report be updated far enough in advance of closing to ensure that any changes that need to be made can be done in time.”
Both DeLuzio and Rowland suggest finding a reputable lender that can help identify ways to improve and protect your score during the home-buying process — by lowering credit utilization, for instance.
Don’t discount the benefits of being prepared
While you should always be mindful of your credit, it’s important to understand how beneficial preapproval and overall preparedness can be to your ability to land the home of your dreams.
“You should shop well in advance of the point where you ‘need’ a home so that you have hired your lender and real estate agent in advance of finding your dream home,” says Rowland. “Being fully approved and able to close quickly (with all your lending ducks in a row) can give you a leg up against any potential competing offers.”
What steps did you take to get prepared for your mortgage preapproval? Tell us in the comments!
