Your ability to obtain a mortgage is significantly influenced by your credit score. That’s because lenders use it (together with your credit report and other factors) to assess your likelihood of making timely and complete home loan repayments. But just like applying for any other type of credit, applying for a mortgage can have a variety of effects on your credit score.
When you apply for a mortgage, the lender will have to perform a hard inquiry on your credit record, which could initially lower your credit score. When a lender obtains a copy of your credit report from one of the three major credit agencies, the process is known as a “hard inquiry” or “hard pull” (Experian, Equifax or TransUnion). A hard inquiry is not only utilised when dealing with mortgages; it is used if you apply for a new credit card, personal loan, auto loan, or any other type of credit.
Whether you are approved or denied for a credit card, personal loan, or mortgage, a hard inquiry can really lower your credit score by a few points.
Particularly with mortgages, you’ll probably apply for a house loan from several lenders so you can compare your options. Your credit won’t be harmed more than once in this situation. As long as you submit additional applications for a mortgage within 45 days of the initial credit check, additional lenders can request your credit report without further affecting your credit score.
Making Mortgage Payments
Even if your credit score suffers after qualifying for a mortgage, you may rebuild it by always paying all of your bills on time and in full each month, including your mortgage. This is so because your credit score is 35 percent based on your payment history.
On the other hand, your credit score may suffer if you skip a mortgage payment or are unable to make a complete payment one month. Verify that the interest rate, monthly principle, PMI (if applicable), and other relevant components of your monthly payment are within your budget before accepting your preferred mortgage offer.
A longer loan term is one approach to reduce your monthly principal amount; however, keep in mind that you will often pay more in interest over the course of the loan if you choose this option. Make sure you look at lenders who can do this if you believe it better matches your demands. Both Chase Bank and SoFi provide mortgage alternatives with up to 30-year loan lengths. And with SoFi, you can also get a 0.25 percent price cut on your loan when you lock in a 30-year conventional house loan. This can enable you to reduce your mortgage payment by a small amount.