If you’ve been following my posts (and I hope you have) you’ll have noticed that I tell people to get prequalified for a loan as soon as they think they might like to purchase a home. The reason is I want them to avoid any nasty surprises during the loan process. It’s better to know sooner rather than later!
But the thought may have crossed your mind…
Doesn’t prequalifying involve a credit check?
The answer to that question is yes, prequalifying does involve a credit check. If someone doesn’t go ahead and obtain your credit scores and look through your credit, then you haven’t really been prequalified.
Thought so, you think. And won’t checking my credit be bad for my credit?
My answer to that question is also yes — sort of. So let’s talk about that.
Use credit checks with caution.
Anytime your credit is checked it can reduce your score, but there’s really no way around it. Some credit bureaus try to make you believe you can shop around and have your credit checked multiple times without it affecting your credit, as long as it’s done within a certain timeframe. However, I’ve found that it does reduce the credit score.
Why do credit checks lower your score?
Different companies report differently. If you go to a mortgage lender, then a bank, and then a credit union, the system may not pick up that you’re shopping for a mortgage. It doesn’t know that you aren’t shopping for a mortgage plus a car plus a boat — so that can trigger a reduction in credit score.
Why can’t I just hand you my credit report from Transunion or Equifax?
There are a couple of reasons why you can’t do that. Number one, there are different credit scoring models. The different models give different weight to the various factors that go into your credit score. They may all look at your payment record, amount of debt, and so on, but they assign their own weights to those factors based on their own formula. That means you can have different credit scores for the same consumer.
So some clients will tell us their credit score is higher than what we saw when we pulled it. That’s because they’ve seen the consumer score, but we pull mortgage scores, and oftentimes those are less than the consumer score. When I bought my first house, my mortgage score was 20 points higher than my consumer score.
In addition, we have to know what we’re going to deliver to our end investor, like Fannie Mae, Freddie Mac and Ginnie Mae. The credit score you pull may be different than the one that’s on our credit report. That could make a drastic difference in which one you qualify for.
A credit score is not just a number.
So there are a lot more things than just the black and white score. There are things in the report that signify what programs you are a fit for.
It not only matters for the credit side, but it also matters for the debt side. There are certain types of credit cards that have to be paid off monthly and that can affect your qualification amount. There are different ways to calculate some of those payments against what you can qualify for. There are authorized user accounts that sometimes can remain on your record and sometimes need to be removed.
If we can address these things up front and make the changes to get the final score, that that could make a big difference in what someone can qualify for.
Get an expert opinion.
In my opinion, not having your credit reviewed upfront by somebody who knows what they’re doing is one of the biggest mistakes people make. It is one of the main ways in which a person’s loan application gets derailed. That’s why it’s important to begin by talking to a lender who knows what it is they’re looking at. If there are things on your report like an authorized user account that you’ve been removed from, that is going to cause issues.
Get out ahead of problems.
It’s better than to have any issues addressed up front. So even if you’re not going to buy a house for six months or a year, go ahead and get your credit looked at. That way you have time to get everything in place. The problems come when people call us and say they’ve already made an offer on a house. We see there and then that there are problems that need time to be addressed.
The prequalification piece is all about uncovering potential problems down the road. That’s our main goal. We want a happy client, we want a smooth closing, and we do not want any ugly surprises.
It’s quick and it’s free.
Step 1 is to review everything up front — spend the time. It’s free for the consumer, and it’s a great 10-minute time investment that helps you figure out the best course of action before you get under contract.
If you have questions about prequalification call us at (205) 986–4220, get online or find us on social media. We’re here to help.
— Ben Chenault,
Certified Mortgage Planner
MortgageBanc / Fairway Nmls# 2289
Fairway Independent Mortgage Corporation is not a credit counseling agency and will not provide credit advice. Please consult a professional regarding your specific credit situation.
Copyright©2019 Fairway Independent Mortgage Corporation doing business as MortgageBanc. NMLS#2289.4750 S. Biltmore Lane, Madison, WI 53718, 1–866–912–4800. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Business Oversight under the California Finance Lenders Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License. Georgia Residential Mortgage Licensee #21158. Licensed Nevada Mortgage Lender.