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How a mortgage credit check affects your score

Jim Quist Feb 26, 2024 5:00:00 PM
How a mortgage credit check affects your score

Multiple inquiries from mortgage companies within 45 days are grouped and counted as a single inquiry, which minimizes the impact on your credit score.

In this article, I'll show you how to use the 45-day window to get pre-approved for the mortgage and shop for the lower rate without crushing your credit score.

Does getting pre-approved hurt my credit?

When you get pre-approved for a mortgage, the lender checks your credit to review your credit history and score. The credit check is a "hard inquiry," which can temporarily lower your credit score by a few points.

Homebuyers should avoid shopping for a mortgage rate in the pre-approval stage. You can only lock the mortgage rate when you have a property address. Additionally, you're not obligated to use the lender that pre-approves your mortgage, and you can switch lenders if you find one offering better terms.

Instead, focus on selecting the right lender and real estate agent. Having experts at your back who will go the extra mile can be the difference between a rejected and accepted offer.

First, choose a local mortgage lender, like NewCastle Home Loans, and get a verified pre-approval letter before you start house hunting. Next, hire an experienced real estate agent to represent you and give the agent a copy of your letter. 

When you're pre-approved, you'll be in an excellent position to make an offer on a home when you find one you like.

The time it takes to find a house to buy can vary significantly from person to person and depends on many factors, such as the local housing market and your personal preferences. As a result, you may find your dream home relatively quickly or take a few months to find the right property.

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When should I shop for mortgage rates as a home buyer?

Start shopping for a mortgage when you're "under contract" to buy a house. Under contract means you made an offer on the property, and the seller accepted it.

When you're under contract, the sale has yet to be finalized, as there are often contingencies and other conditions that must be met before the deal can close.

Depending on the sales contract terms, you typically have 15 to 60 days to close. This gives you time to complete due diligence on the property, such as an attorney review, a home inspection, and shopping for a mortgage.

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How do I shop for a mortgage?

To shop for a mortgage, research and compare offers from a few lenders to find the best mortgage loan for your needs. Here are some steps to follow when shopping for a mortgage:

  1. Find a reliable mortgage lender. Start with the lender that did your mortgage pre-approval letter. Next, ask for a referral from friends, family, and coworkers who recently purchased a home. Then, check with your real estate agent because agents often work with mortgage lenders. After that, research online reviews and ratings of lenders you're considering to understand their reputation and customer service. 
  2. Ask for an official Loan Estimate. Ask a few mortgage lenders for a Loan Estimate to shop for a mortgage. The Loan Estimate is a standardized form that outlines important information about the loan, including the interest rate, monthly payments, closing costs, and other fees. Reviewing the Loan Estimate carefully and comparing it with other offers from different lenders to ensure you're getting the best deal possible.
  3. Lock the interest rate. Mortgage rates frequently fluctuate, so getting Loan Estimates on the same day is a good idea. Then, once you've found a lender and mortgage product you're comfortable with, lock in your interest rate to protect against sudden increases before closing on your new home.

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Do lenders check credit before sending a Loan Estimate? 

The lender must check your credit before sending you a Loan Estimate to assess your creditworthiness and determine the loan terms you may qualify for. 

Your credit score and credit history provide information about your payment history, outstanding debt, and overall financial stability. This information determines the interest rate and other loan terms, such as the loan amount, down payment, and closing costs.

Additionally, the lender is required by law to provide you with a Loan Estimate that accurately reflects the costs of the loan, and this requires accurate information about your creditworthiness. 

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Do multiple inquiries from mortgage lenders hurt my credit?

Within the 45-day "rate shopping" period, the credit bureaus recognize that you're rate-shopping for the best home loan deal, so they group inquiries as a single inquiry.

This way, you can shop for the best mortgage deal without worrying about the negative impact of multiple credit inquiries on your credit scores. 

Shopping for a mortgage rate is still worth it 45 or more days after the first credit check. This is because the benefits of a lower mortgage interest rate and loan costs generally outweigh the effect on your credit score from the rate shopping. 

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What's the difference between a hard and soft credit check for a mortgage?

The difference between a hard and soft credit check for a mortgage is their impact on your credit score and the purpose for which they are used. 

  • A soft credit check does not impact your credit score. Creditors use soft credit checks for background and credit monitoring services. When a lender or creditor performs a soft credit check, they only review a limited portion of your credit report, such as your credit history or payment history.
  • A hard credit check, also known as a hard pull, is a credit inquiry that can impact your credit score. Lenders or creditors typically use hard credit checks when you apply for credit, such as a mortgage, credit card, or personal loan. When a lender or creditor performs a hard credit check, they review your full credit report, including your credit history, payment history, and credit score.

NewCastle Home Loans performs a hard credit check as part of the verified pre-approval process. We thoroughly review your credit and financial history to give you the strongest pre-approval letter - signed by one of our certified mortgage underwriters. A verified mortgage pre-approval letter, endorsed by the loan decision maker, improves the likelihood you'll win the deal, especially when competing with other buyers. 

Get pre-approved

It's worth noting that not all credit inquiries are treated the same way. For example, credit card and personal loan inquiries may significantly impact your credit score more than mortgage pre-approval inquiries. Therefore, it's generally best to avoid opening new credit cards or taking out loans other when preparing to buy a home, as multiple credit checks can lower your score.


Jim Quist NewCastle Home Loans
President and Founder of NewCastle Home Loans. Jim has been in the mortgage business for 20+ years.

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