How Does a Mortgage Application Impact Your Credit?

Your credit score is extremely important when buying a home, as it impacts the mortgage rate you're offered.

However, when you apply for a mortgage, the application can affect your credit score. Lenders will place an inquiry on your credit record, and inquiries can cause a temporary score reduction of a few points. It's important to understand this impact and how it affects your ability to shop for mortgages and the best possible mortgage rates.

When Does a Mortgage Application Impact Your Credit Score?

A mortgage application affects your credit score only if the lender puts a hard inquiry on your credit report. If you get a soft inquiry, this will not affect your credit report or score.

Some lenders will make a hard inquiry during the prequalification and preapproval process. This is the process you complete initially to see if you qualify for a mortgage and determine how much you may be able to borrow.

Other lenders may make a soft inquiry, and may not make a hard inquiry until you formally submit the full application for a home loan. Once you get a hard inquiry, this can cause a small, but temporary, decrease in your credit score. The hard inquiry will remain on your record for two years.

How Many Times Can a Mortgage Application Impact Credit?

Your credit will probably be checked multiple times during the mortgage loan application process. Whether these credit checks are treated as new inquiries that affect your credit will be determined by the type of credit pull and when the credit check happens. Mortgage credit checks during a 45-day period after the first check are all treated as one credit pull and only affect your credit score once.

1. Initial Prequalification or Preapproval Credit Check

The first time your credit may be checked is during the prequalification or preapproval process. Since this is a preliminary step, many but not all lenders do a soft inquiry at this phase, so your credit may not be affected.

• Prequalification: Prequalification involves providing basic financial information to lenders, and sometimes, but not always, involves only a soft inquiry or soft pull on your credit.
• Preapproval: Preapproval is a more in-depth examination of your finances, and it is very common for your lender to require a hard credit check for preapproval.

Freedom Mortgage offers prequalification for mortgage applications. This involves a hard credit pull to provide a more accurate estimation of your ability to borrow. This can have a short-term negative impact on your credit score, but only by a few points.

2. Formal Mortgage Application Pull

When you formally apply for a home loan after shopping around for rates, your lender will do a hard credit pull. That's because you are officially applying for credit, and an underwriting pull is necessary.

If this happens within 45 days after your initial prequalification or preapproval credit check, the two inquiries from the preapproval/preauthorization process and the formal application process may be treated as one inquiry. Depending on how long the mortgage approval process takes, your lender may check your credit every 30-45 days to help ensure that nothing meaningful has changed.

3. Final Pre-Closing Check

Lenders may also perform a final check of your credit during the closing process to confirm that your credit has not changed since you initially applied for a loan. This could be a soft or a hard credit pull depending on your lender's requirements. Depending on the timeline, this could also be combined with earlier inquiries and treated as one inquiry.