For potential homeowners, getting a pre-approved mortgage seems like the right step to buying a house. However, it’s important to note that pre-approval does not guarantee the buyer will get actual mortgage approval. There’s still a chance the buyer can get rejected based on several factors. In this article, we will discuss how mortgage pre-approval can affect your credit score and how to avoid a big decrease.
The Effects of Soft and Hard Inquiries
Before applying for a pre-approved mortgage, you should keep track of the types of inquiries you make that could affect your credit score.
“Soft” inquiries happen when you apply for a pre-approved credit card, and the lender looks up your credit history. Other situations of soft inquiries include when your current credit card company reviews your existing account or when a collections agency checks your credit report. Soft inquiries do not affect your credit score.
However, “hard” inquiries can be reviewed by lenders from credit card companies, as well. But hard inquiries are usually reserved for bigger loan amounts such as a car loan, line of credit, or mortgage. Hard inquiries do affect your credit score, but only if there are too many of them in a short period.
The key to reducing credit score impact is to avoid applying to too many lenders at once. Applying multiple times tells lenders that you are going through financial challenges and are desperate for a loan. Keep in mind that hard inquiries are removed from your credit report after two years.
The strategy is to apply to several lenders for pre-approval within a short time versus applying to a few of them every two to three months. When you apply for pre-approval to several lenders in a two-week period, they are all merged and counted as one hard inquiry.
The Bottom Line: Should you get a pre-approval?
Now that you know how soft and hard inquiries can affect your credit score, should you apply for a pre-approved mortgage? Ultimately, the payoff is worth it, as you will be investing in your own home.
Think of mortgage pre-approval as lining your ducks in a row. You’re preparing yourself for closing on purchasing your new property within a two-week period, rather than spacing it out within months. During this period, avoid applying for other forms of credit, as they will affect your credit score. A good rule of thumb is to secure a few lenders for pre-approval who are on-board with you.
As you can see, if you’re planning to buy a house, it’s a good idea to get your mortgage pre-approved. Be sure you get the seal of approval with a pre-approval mortgage letter from your lender before looking for a house. This will make your home-buying process go smoothly.
At Northwood Mortgage, we have an expert staff of mortgage agents specializing in pre-approved mortgage solutions in Toronto, Scarborough, Mississauga, Brampton, and the GTA. We take the time to assess your mortgage situation and offer pre-approved mortgages that suit your lifestyle.
If you would like more information on pre-approved mortgages in Toronto and the GTA, we invite you to book a FREE consultation with one of our Northwood Mortgage agents by calling 416-969-8130 ext. 111, toll-free at 888-492-3690, or contact us here. Once we receive your message, one of our mortgage agents will contact you within 24-48 hours to arrange a consultation.