As you enter the market to purchase a home for the first time, you are likely hearing a lot about credit reports and how it pertains to the mortgage you're applying for. Obtaining a mortgage is not as easy as choosing the home, filling out the paperwork, and then showing up on the day of closing to sign the documents and grab your keys. Before you head out on your house hunting adventure, understand these two key aspects of your credit report to make sure you are fully prepared, and that you'll get a resounding approval from the lender.
When a Soft Credit Score Inquiry Is Used
You've seen those envelopes come in the mail with pre-approval offers from credit card companies, personal loan organizations and even mortgage lenders. These institutions have looked at your credit report to obtain your FICO score only.
These "soft inquiries" do not harm your score, and they don't show up at all when you look at your report. These institutions see your score and then assume that their risk in lending money to you is low, based on your score, without seeing the full picture.
When a Hard Credit Score Inquiry Is Used
When you get down to the brass tacks of actually applying for your mortgage, the bank does a "hard inquiry." Here, the individual looking at your file reviews everything from where you've lived, where you've worked and how well you've handled credit in the past.
A hard inquiry is the most important aspect of obtaining your mortgage. If you have a lot of these inquiries on your report, the banks might consider you a risk, because it appears that you have done a lot of shopping around trying to borrow money.
When Timing Is Everything
Purchasing a home is all about the location in which you want to live, but it is also about timing. Before you begin the process, take a look at your credit report to see what your overall financial picture is. If there are a lot of hard inquiries, it might be best to wait several months or even a year for them to fall off your report.
While mortgage companies do not notice soft inquiries at all, and hard inquiries do fall off within a year or two, you'll need to keep track of who is looking at your report. Ask your real estate agent, one like Ebh Properties Inc, about other ways that you can ensure that your credit is up to par so that you can obtain the mortgage on the home the agent is showing you.