The smartest way to initiate the home buying process is to start with the financial aspect, so you begin your home shopping with a realistic understanding of what you can afford. This part of the process includes comparing loans and going through a pre-approval or pre-qualification. Your credit score is crucial as it determines what kind of loan you will qualify for and how much you can borrow. We’ve covered something to help your credit and DTI generally, but here are ways to protect your credit specifically during the loan comparison process.
Keep It Short
While it seems like a good policy to shop around, you want to choose the lenders you apply with wisely and sparingly. Each time you apply for a home loan, the mortgage company conducts a credit inquiry. These inquiries are then reported to the three major credit bureaus: Equifax, Experian, and TransUnion. Every credit inquiry signifies the possibility that you will be taking on more debt and lowers your credit score. Also, dragging the process out can hurt your score. A good rule is to keep your mortgage shopping within a window of 45 days. If you’re able, it’s even better to only compare mortgages for two weeks.
While pre-approval can be a good starting point in most cases, if you’re worried about your credit score, it may be in your best interest to begin with a pre-qualification. When getting pre-qualified, the lender uses what’s called a “soft pull” to estimate how much you may be able to borrow. This doesn’t harm your credit the way a pre-approval would.
Bear in mind: in the current seller’s market you will need a pre-approval to compete with other potential buyers when you start making offers. It’s imperative to present yourself as a serious buyer and a pre-approval does that. A pre-qualification is suggested as a first step only if you are in the very beginning phase of considering a new home. This gives you a framework of what kind of home is in your reach and can help you choose a realtor who specializes in areas that fit your budget.
Know Your Credit Score Beforehand
It helps to know your credit score before you begin the shopping process. You are entitled to one free credit score report a year. For more information and things to avoid when it comes to getting your yearly credit report, visit the federal trade commission. Knowing your credit score beforehand can help you discover and correct any errors that cause an unjustified drop in your score. You’ll be able to confidently address any anomalies when you know what the score was in recent memory, as opposed to seeing it for the first time in a while during the application process.
Don’t Take on Any New Debt
During your home shopping process, you may be tempted to start looking at new appliances or a new car that will fit your changing commute, deny the impulse! Any large purchases and new debt will damage your credit score. Wait until you officially close on your mortgage before applying for any new lines of credit or making large purchases.
We Can Help
Navigating the loan approval process can be complicated, but we’re here to help you make the right financial decisions. We want you to feel confident in your choice of lender and prepare you well for your next step in the home buying journey. If you’d like to learn more about how to keep your credit score optimal during the loan shopping process, or you’d like to apply reach out to us at (877) 699-0353.