When you apply for a mortgage or credit card, you may discover whether it lowers your credit score or not. We are usually prequalified and preapproved before the application process. So, does getting mortgage preapproved hurt your credit? Allow Hanfincal to assist you in determining the answer.
1. What is a mortgage pre-approved?
Mortgage preapproval is an action taken by a loan officer at a bank or other lending institution that involves a thorough examination of your financial situation to confirm your creditworthiness and determine the loan amount you qualify for.
You will fill out a mortgage application, and the lender will verify the information you provide while also performing a credit check. If you’re preapproved, you’ll get a preapproval letter, which is an offer (but not a commitment) to lend you a certain amount for 90 days.
Preapproval does not guarantee you’ll get a loan, but it means you’ve gone through most of the financial scrutiny required. It’s the closest you can get to full approval without committing to a specific property.
2. How does a mortgage pre-approved work?
The mortgage preapproval process is divided into two stages, which are as follows:
- Stage 1: Before receiving approval, you must prepare some important documents to verify your income, such as your most recent two months of bank account statements, your most recent two tax returns, two most recent paycheck stubs, and your W-2 forms from the previous two years. You will also authorize your lender to check your credit reports and credit score.
- Stage 2: Once your lender has received the information you provided above, they will determine how much mortgage money they are willing to lend you. Your lender will provide this information in a written preapproval letter when you get a preapproval.
You should keep this letter safe because it serves two purposes:
- It provides you with how much of a mortgage you qualify for.
- The preapproval letter can make you more appealing to sellers than those who do not have one.
This letter is usually valid for 90 days, but different lenders have time limits for how long preapproval letters are valid.
3. Does getting preapproved hurt your credit?
Yes, a mortgage approval can hurt your credit. This is because getting a mortgage preapproved usually necessitates a hard credit inquiry, which lowers your credit score by five points or less if you end up applying for credit.
Furthermore, if you want to know how long your credit will be impacted by a preapproval, this is the answer. Hard inquiries for mortgage approval can remain on your credit reports for up to two years, but their significance fades over time. FICO claims that it only considers inquiries from the previous 12 months when calculating your scores.
In case you do not understand the difference between a hard credit inquiry and a soft credit inquiry and how they affect your credit, please see the distinction of how many types of credit checks.
4. Is this worth getting preapproved?
Here are four reasons that can persuade you that it is worth getting preapproved:
- Get organized: This is the first advantage you should pay attention to. Preapproval can help you prepare for the home buying process and avoid waiting time because you’ll have much of the paperwork gathered for the official home loan application later.
- Set a budget: You’ll be able to determine your price range and buy homes within that range, saving you time.
- Make a financial strategy: If you don’t qualify for a pre-approval, you’ll be able to learn why and devise a strategy to improve your finances.
- Back up your purchase offer: A mortgage pre-approval letter can help you stand out from the crowd.
Does mortgage preapproved hurt your credit? Although the answer is yes, you are not too worried about its effect. Your score may be lower than five points, but this does not have any severe impact in reality. Reread this article from Hanfincalto ensure you are ready for your preapproval application.
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