Mortgage Pre-qualification?

[dh1989]

I am currently house hunting and pre-qualified for a 15 yr conventional mortgage through my local credit union. A hard credit inquiry was pulled at the time of the pre-qual. According to the letter, and what the CU loan officer explained, the pre-qual is good only for 60 days, after which I need to call them to 'extend' it. I was told that every time I extend, a new hard credit inquiry is pulled. I was also told that if, at the time that I am ready to close, the last credit pull is more than 30 days old, they will make another pull.

According to Transunion my FICO is 769, with only 1 inquiry on it from the initial pull from the CU. I am due to extend my pre-qual the end of this month. My questions are:

-Is this a normal practice to have to constantly renew a mortgage pre-qual, and have a hard credit pull every time? I may be looking at houses for up to a year given the local market.
-How much can I expect this to affect my credit score? Should I be concerned? I only care about my score to qualify for a mortgage - I have no other debts and typically pay cash for everything.

I'm also a little confused as to the difference between pre-qualification and pre-approval. Are these one in the same? My letter states that mortgage is contingent on satisfactory verification of the information I provided and an "updated credit report."

Thanks.

[bjl584]

The renewal shouldn't be a hard pull. You need to check on that. Only the initial qualification should be a hard pull on your credit. At least this is the way that it was explained to me when I was house shopping.

Pre-qualification is basically to show to realtors that you are credit worthy enough to not waste their time. They don't want to be showing houses to people that don't have the ability to buy, cause there is no money to be made in that. The bank wants approval. It's the next level above the qualification. What is good enough for the realtor isn't quite good enough for the bank.

[Eagle]

I'm also a little confused as to the difference between pre-qualification and pre-approval. Are these one in the same? My letter states that mortgage is contingent on satisfactory verification of the information I provided and an "updated credit report."

Thanks.

Hey DH1989 “Pre-qualified” and “pre-approved” are usually two separate status's in the home buying process. There’s also the final step which is the “loan commitment.”

**Pre-qualified** is the very first step in the mortgage process many people take. You supply the bank or credit union with an overall financial picture including: income, debt, assets. This allows you to discuss goals, needs, and wants with the mortgage lender. Of note this isn’t a sure thing but instead an estimate if you will of what you could expect to be approved for. This status doesn’t carry quite the same weight as the pre-approved status. This is more of a rough estimate of what you might qualify for through the bank or credit union.

**Pre-approved** is the next step and tends to be a lot more involved. The potential home buyer fills out an official mortgage application that typically involves a fee and provides documentation whereby the lender does an extensive background on the individual or couple. This typically includes a credit check that does ding your credit. From this information and application the lender can give you a specific amount for which you are approved for. The interest rate isn’t locked in but you can get a better idea on what interest will be charged on the loan. In some cases you can lock into a specific rate. The address of the property in question is left blank until you find your new home.

With this approval you receive a conditional commitment in writing for the exact loan amount allowing you to look for a house at or below that price point. This is a serious advantage when dealing with a potential seller. This could even potentially prevent you from losing out to another offer as the seller knows you are already approved. Getting pre-approved also allows you to move quickly when you find your new home.

[Eagle]

**Loan commitment** is issued by the lender when you are approved for the house in question. A house inspection can be conducted at your expense to determine what things need to be worked on before the house is finalized. This typically happens after or in conjunction to a house appraisal with approval resulting in at or above the agreed upon price. If the agreed upon price is higher than the appraisal you have the option of either paying the difference or asking the seller to reduce the asking price. At this point your income and credit score will be checked again to ensure nothing has changed since the initial approval. This is typically a “soft” pull and doesn’t affect your credit. So make sure NOT to touch your credit until the loan commitment process is over.

That said we got pre-qualified and pre-approved when looking for our home last year. We were told we were approved for a 160k property at roughly 4.6%. Our mortgage ended up being lower than that and the interest right about what was quoted. Our loan commitment process was pretty smooth. Because we were pre-approved our loan went through within a month of finding the house.

Of note be careful with how much house you purchase. You don’t want to over commit. Consider too getting a 30 year note and paying off the house early. You never know when your financial situation might change and that added buffer could be helpful.

Consider too this post on a checklist for buying a house.

Some questions to consider when buying a house:

1. What is your household income?
2. What kind of monthly expenses do you already have?
3. What size and cost of a house are you looking for?
4. How much do you have to put down?

[snafu]

Why are you asking for a 15 yr mortgage? Using credit boosts your FICO score as long as you stay within the 30% parameters. Paying cash for everything is not helpful, it doesn't register as being credit worthy and you know your interest rate is set by the lender's view of your credit worthiness. I suggest you look at threads discussing mortgages in the 'search' box.

[dh1989]

The renewal shouldn't be a hard pull. You need to check on that. Only the initial qualification should be a hard pull on your credit. At least this is the way that it was explained to me when I was house shopping.

I specifically asked what happens after the initial 60 days. The loan officer (the one who signed the pre-qualification letter) stated to me that I would call to extend and another hard pull would occur. His exact words to me were, "your credit is so good we could do a pull every month and it wouldn't matter." I just found this odd. If I shopped for a year plus, I would have 6 inquiries counting toward my score. If I'm not mistaken inquiries older than a year don't count toward my score. I'm putting 50%+ down so I'm not sure what the concern is

I did find this odd, but this is my first time going through this.

As to the 15-yr mortgage, I am budgeting to have it PIF in about 5-7 yrs. I have 50-60% to put down, plus about a 1 yr emergency fund, retirement is fully funded (Roth, 403b, pension vested), no other debts, etc. The 15 yr vs the 30 should save me about $8000 in interest over the 5-7 yr span.

[Eagle]

As to the 15-yr mortgage, I am budgeting to have it PIF in about 5-7 yrs. I have 50-60% to put down, plus about a 1 yr emergency fund, retirement is fully funded (Roth, 403b, pension vested), no other debts, etc. The 15 yr vs the 30 should save me about $8000 in interest over the 5-7 yr span.

Sounds like a plan. $8k in savings is nothing to shy away from.

You seem to have all your finances in order. Honestly, your credit score hit would be minimul say 2-3 points per pull. Don't worry about it. My credit score as of today is 760. It was over 780 when we bought our house last year.

[corn18]

This is from FICO:

What are inquiries and how do they affect my FICO score?

Credit inquiries are requests by a "legitimate business" to check your credit.

As far as your FICO® score is concerned, credit inquiries are classified as either "hard inquiries" or "soft inquiries" – only hard inquiries have an affect on your FICO score.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries where you're checking your own credit (such as checking your score in myFICO), credit checks made by businesses to offer you goods or services (such as promotional offers by credit card companies), or inquiries made by businesses with whom you already have a credit account.

Hard inquiries are inquiries where a potential lender is reviewing your credit because you've applied for credit with them. These include credit checks when you've applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single inquiry. One exception occurs when you are "rate shopping". That's a smart thing to do, and your FICO score considers all inquiries within a 45 period for a mortgage, an auto loan or a student loan as a single inquiry. This same guideline also applies to a search for a rental property such as an apartment. These inquiries are usually recorded by the credit bureau as a type of real estate-related inquiry, so the FICO Score will treat them the same way. You can avoid lowering your FICO Score by doing your apartment hunting within a short period.

Inquiries may or may not affect your FICO score. A FICO score takes into account only voluntary inquiries that result from your application for credit. The information about inquiries that can be factored into your FICO score includes:

Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
Number of recent credit inquiries.
Time since recent account opening(s), by type of account.
Time since credit inquiry(ies).
A FICO score does not take into account any involuntary inquiries made by businesses with whom you did not apply for credit, inquiries from employers, or your own requests to see your credit report.
For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry would take less than 5 points off their FICO score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.