REGION – A mortgage prequalification will provide you with an estimate of how much you might be able to borrow from a specific lender based on your self-reported finances, such as your income, debts, and credit score. Getting prequalified for a mortgage usually doesn’t hurt your credit. Most lenders ask you to share an estimated credit score, or check your credit with a soft pull to determine if you prequalify for a mortgage, which doesn’t affect your credit score.
Keep in mind, not all lenders follow the same prequalification process, and may need to run a hard credit check. Hard inquiries will affect your credit score. Always confirm with the lender beforehand whether they’ll use a soft or hard inquiry to verify your credit score.
Soft inquiry vs. hard inquiry
To understand how prequalification impacts your credit, you’ll need to understand the difference between a soft pull and a hard pull. Prequalifications don’t usually affect credit scores, because no hard pulls, or hard inquiries, are involved. However, preapprovals usually affect credit score, because hard inquiries are used.
Hard inquiries are triggered when the lender checks your credit with the intent of making a decision about your application. While a hard inquiry is often necessary to process a preapproval or mortgage application, it can temporarily lower your credit score by a few points. When shopping for a mortgage, do so within the 45-day window. During this period, each hard inquiry for a mortgage is treated as a single inquiry, minimizing the impact on your credit.
Soft inquiries, on the other hand, don’t trigger anything on your report. They typically occur when an employer checks your credit as part of a background check, or when you pull your credit report yourself. A soft inquiry is the most common type of credit inquiry conducted by lenders when prequalifying a borrower.
However, some lenders use prequalification and preapproval interchangeably. If you ask for a prequalification, a lender may assume you’re asking for a preapproval and trigger a hard inquiry on your report. It’s always best to ask your lender whether they will use a soft inquiry or hard inquiry to provide you with a prequalification letter.
Benefits of getting prequalified
Prequalification allows borrowers to get an idea of how much they can afford without having to submit a formal loan application or trigger a hard inquiry on their credit reports.
The prequalification process is pretty straightforward. Once a lender reviews your self-reported information, they can quickly determine the types of mortgages you prequalify for and the estimated loan amount you may be able to borrow based on that information.
Some benefits of getting prequalified are that you can establish a comfortable homebuying budget to begin searching for homes now that you have a mortgage estimate; you can compare prequalification offers from multiple lenders without hurting your credit score; and you can share your prequalification letter with your real estate agent to show them you’re a serious buyer, or use the letter to strengthen your offer on a home.
It’s best to get prequalified for a mortgage early in the homebuying process, especially if you’re just starting to explore your options. A prequalification will reveal how much you’re eligible to borrow, which gives you a comfortable price range to search within, and an idea of what your monthly payments will look like.
Although a prequalification doesn’t guarantee loan approval, it gives you a good idea of how much money a lender is willing to finance towards your home purchase. Prequalification also usually does not affect your credit score, making it a low-risk way to shop around and compare lenders.
Remember, getting prequalified provides borrowers with many benefits. You just want to double check with the lender beforehand that your credit won’t be affected in the process. Depending on the state, some lenders may require a hard credit inquiry to process your prequalification request. Consider getting prequalified with multiple lenders to compare offers, reduce loan fees, and maximize your loan amount.
Provided by Zillow.