When shopping for a home, your realtor will tell you to go get qualified. This could be a mistake, depending how long it takes you to find a house. Mortgage loan officers never discuss this with new borrowers. But, it is something that can come back and cost you a lot of money.
A mortgage lender will pull your credit report usually within a day or two after submitting your loan application. The mortgage inquiry will impact your credit scores the following month. The impact can be up to over a half of dozen points decline in your scores.
If it takes longer than 90 days to find a house and close on a mortgage, the mortgage lender will have to request your credit report again after 90 days, creating a new inquiry. The problem on the second credit report is your three FICO scores have already dropped from the first inquiry. This means you are taken a hit to your scores.
Such a credit score drop could cost the potential homebuyers a lower grade to their credit scores, meaning they see a higher interest rate, payment and / or costs. Credit scores are graded in 20 point increments. If credit scores drop from an “A’ grade (760 and above), to below 760, the mortgage applicant could see a higher payment. The credit score grade adjustment also occur at 740 to below 740, 720 to below 720, 700 to below 700, 680 to below 680, 660 to below 660, and 640 to below 640. If someone drops below 620, the chances of being approved are remote.
Inquiries hit younger consumers harder because they lack the depth to their credit report. Tony is just 20 years old and had a 701 credit score with a signed contract ready to purchase a home. A problem came up and he cancelled the contract. He waited over 75 days to find another house. The lender pulled an updated credit report and his score had dropped to 694. His interest rate and payment went up an extra $63 a month.
What to do?
Make sure you are intent on purchasing a house within 90 days before you have the mortgage lender pull your credit report. If are looking for longer than 90 days, utilize another source to check your Classic FICO Scores and loan qualifications such as a certified credit counselor. Non-profit credit counselors do not create hard inquiries on your credit report and you get the same loan and FICO Score information. MyCreditPlan.org is one non-profit credit counselor that is available online. For a small fee, you can check your 3 FICO credit scores used by all mortgage lenders, and it will provide your mortgage loan qualifications.
Just another way to try to save you money and any heartache.