Will Mortgage Pre-Approval Harm Your Credit?
When looking to purchase a home, many people may recommend you get a pre-approval. According to Lending Tree, pre-approvals can be beneficial for potential home buyers looking to gauge how much they can afford to buy. Plus, it can help you appear as a more serious buyer compared to those who don't possess a pre-approval. Despite these benefits, a mortgage pre-approval can knock a few points off your credit score if you follow through with the inquiry and apply for the mortgage.
However, as long as you don't actually apply, your pre-approval remains as a soft inquiry. Unlike hard inquiries (like mortgage, auto, and credit card applications), soft inquiries don't affect your credit score because they're conditional approvals. If you're considering purchasing a home and applying for a pre-approval, there are a few things you should know. Read on to learn more about pre-approvals, including how they work, their impact on your credit score, and their pros and cons.
What is a mortgage pre-approval?
If you're considering buying a house, you may have heard the term pre-approval being tossed around. But what exactly is a pre-approval? According to The Balance, a mortgage pre-approval is a preliminary acceptance letter of a mortgage loan, which outlines how much money you may qualify for. The pre-approval letter may also contain your potential interest rate and monthly payments. However, if your income changes or your credit score drops, your offer may no longer be valid.
Having a pre-approval can be very beneficial as a home buyer, and it may even be required by some sellers. To get a pre-approval for a mortgage, you'll need to gather a few important documents. This includes but is not limited to a form of identification, social security, paystubs, W-2s, income taxes, and employment verification. Your lender will then process your mortgage pre-approval application and provide an answer within a few minutes, hours, days, or weeks–depending on their underwriting processes.
How mortgage pre-approvals affect your credit score
Now that you know what mortgage pre-approvals are, it's time to dive into how they work and their effect on your credit. Ramsey Solutions states that mortgage pre-approvals won't hurt your credit score, even if you inquire about multiple ones. While your credit score may fall a few points, the damage done to your credit score is typically minor. According to Nerd Wallet, this is because similar credit inquiries within a close range will appear as one credit pull.
So, should you get a pre-approval if you're planning on buying a house? Many experts suggest that a pre-approval is beneficial despite the impact it may have on your credit score. A mortgage pre-approval can be extremely valuable to have, especially if you're purchasing a home in a competitive market. Doing so allows sellers to see that you have the financial means to buy their property. You can also save time during the closing process with a pre-approval letter.