Customers quite frequently are reluctant to have us obtain their credit reports on an initial inquiry for fear that multiple inquires will result in lowering their credit score.
Mortgage credit inquires do not impact a borrower’s credit scoring. We can pull the borrower’s credit reports multiple times a day for several days and it will not affect the score. The score itself may change day to day based on other factors (account aging, account balances, payment history, etc) but the scores will not change because of the mortgage inquires themselves.
There’s little reason for us to obtain a borrower’s credit score until they’re ready to move forward into a pre-approval posture. However, if the borrower is not certain of their scores then it may prove beneficial to obtain their current scores.
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The borrower should understand that the cost to the mortgage company is approximately $25-$30 at a minimum to simply obtain the credit reports and associated scores. We really don’t want to incur this expense unless there’s a good likelihood of originating a mortgage loan. These credit scores are typically valid for 120 days. In many instances we will use a later report if it provides for a higher score which may result in lower interest rates and/or mortgage insurance on conventional loans.
Many consumers obtain their credit reports via services such as Credit Karma and/or the credit bureaus themselves. However, in most instances the scoring models a mortgage lender will utilize are different that the scores obtained via these services. There are many different scoring models each credit bureau uses depending on the purpose of the inquiry. Example: a car loan inquiry will typically have a different score than an inquiry for a credit card. Multiple inquires for a credit card over a short period of time can result in a negative effect to one’s score but again not in the case of inquiries for a mortgage loan.
Interest rates and more importantly mortgage insurance on conventional loans are extremely interest rate sensitive. Example: a 760+ credit score will typically result in a 50% +/- savings in mortgage insurance premiums versus a 720-739 credit score. There may only be a slight savings in the interest rate but the difference in the mortgage insurance can be substantial. Lower credit scores will result in significantly higher mortgage insurance premiums and interests rates making a FHA mortgage very competitive if not simply a better deal.
Many lenders, especially large institutional banks, will not be willing and/or are not able to assist the borrower in increasing their credit scores. We as a matter of practice always engage the borrower whenever possible to consult with them on both the benefits to increasing their score and more importantly on how to quickly improve their credit scores.
Last year we had numerous customers that had credit scores well below 580 make initial inquiry. In some cases the credit reports were not salvageable near term. However, we have several families in homes today because we helped guide them in an effort to increase their scores so as to be able to qualify for a mortgage loan with reasonable interest rates and/or mortgage insurance. There are lenders that will advertise that they will originate loans with scores under 580. That may be possible but when the borrower learns of the associated interest rates they will be shocked. Unfortunately, many will be forced into these higher priced loans because they’re not able or were simply unaware of their ability to increase their credit scores.
The best advice I can impart is that one needs to make certain that their mortgage loan originator will help guide them when and if necessary in increasing their credit scores if it will result in a significant savings. Important: If the mortgage originator doesn’t have that capability then find one that does. Once you’ve identified a mortgage professional you want to partner with in this mortgage application process then work together to get your credit score to the best possible score as quickly as possible presuming you will be closing within 120 days. Make certain that your credit scores will not be subjected to future review in the event your scores drop prior to closing. If that’s a possibility with that mortgage lender and/or mortgage broker find another lender or broker.
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Please feel free to contact me directly if you need free consultation in these regards. I can also provide you with published materials to fully substantiate my claims as the internet is loaded with false information and I don’t want my comments to be considered as such.