The first step towards becoming a serious homebuyer is getting preapproved for a mortgage loan. Some lenders offer options to complete a preapproval with no credit pull. Others may only pull one credit bureau (Equifax, TransUnion, or Experian) to complete a preapproval. Then there is the topic of a ‘Hard Pull’ vs a ‘Soft Pull’. Finally, what information is reviewed on a credit report to determine creditworthiness and likelihood for mortgage qualification? If you have ever asked any or all of these questions, read on!
If you have received a preapproval without a credit check, then you’re not actually preapproved. One of the most basic elements of a preapproval from an NJ Mortgage Broker is some form of a credit check. Any Loan Officer Near Me that claims to offer a preapproval without a credit check is doing you a disservice.
What about prequalifications? Are these useful? The simple answer is no. If a mortgage broker nj told you that they were 65% certain you could qualify to purchase your dream home, would that be helpful (vs. someone else that was 100% certain)? For this reason, Brightwire (and many of the best mortgage brokers in nj) do not offer prequalifications and only offer preapprovals.
What about mortgage lenders that only pull one credit score before issuing a preapproval - is this a good business practice? To answer the question, we need some additional information. First, why would a company only get 1/3 of the available data on their client to make a credit decision? The answer is that credit reports are expensive, and one way to lower costs is to make a decision with only 33% of the data that will be used once you find the property you want to buy. Another problem with only using one credit bureau is that many auto loan, student loan, personal loan, and credit card companies only provide data to one credit bureau. For this reason, the credit scores and monthly debt calculations that are essential to completing a preapproval will be inaccurate if only one credit bureau’s data is used for a preapproval.
Another common question we get as an independent mortgage broker near me is, what about a hard pull vs a soft pull? Is there a benefit of either approach? The benefit of the soft pull of the credit is that it does not count as a credit inquiry, and therefore will not lower your credit score. The hard pull of your credit will count as an inquiry and will lower your credit score (more information about inquiry types here). So why would anyone use hard pulls if they lower your score? The answer is that your home loan officer new jersey will not make a formal offer of credit without a hard credit pull (the reasoning has to do with the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the contract that each lender signs with their credit vendor to access credit reports).
Another important reason hard pulls are required: Fannie Mae, Freddie Mac, HUD (FHA), and VA (about 66% of the mortgage market according to Urban Institute) require hard pulls for all loans that they purchase and securitize for any residential mortgage nj.
The information that a home mortgage broker nj will review on a credit report includes: credit scores (for the purpose of determining your interest rate and PMI payment, if applicable), payment history (do you have late payments), balances vs limits (are you overextended), number of tradelines (do you have at least 2 or 3 accounts), number of credit inquiries, and derogatory (negative) information – such as collections, bankruptcies, charge-offs, etc.
So, does getting preapproved lower my credit score?
The answer is, ‘It depends on whether the lender does a hard pull of your credit report to complete a preapproval’.
Most preapprovals that we complete at Brightwire, a new jersey mortgage broker, require a soft pull only, which means that getting preapproved with Brightwire will typically not lower your credit score.