This process is intended to help applicants better understand their financing options and determine how much they can afford when it comes to buying a home. But what role does pre-approval play in one's credit score?
In short, obtaining a mortgage pre-approval should not affect an individual's credit score. The only time a borrower's credit score would be affected is when they formally apply for the loan and authorize the lender to perform a hard credit inquiry, which takes a more in-depth look at the applicant's finances. Even then, having multiple inquiries within a certain period of time will only count as one on an individual's credit score.
So why would one want to go through the process of getting pre-approved for a mortgage loan in the first place? It allows potential homebuyers to have an idea of their financing options prior to making an offer on a home. Knowing the exact mortgage amount users may qualify for helps them narrow down their home search and select a home that is within their price range. By getting pre-approved for a loan, users will be prepared and ready to make an offer and close on a home quickly, should they find one that suits their needs.
In addition to pre-approval helping potential homebuyers know their financing limits, it also gives them an upper hand in negotiating an offer. Sellers are often more willing to accept offers from buyers who are already pre-approved since it drastically reduces the risk that the sale could fall through due to financing issues.
In summary, getting pre-approved for a mortgage loan should not have any negative effect on one's credit score. It is an important step to take when planning to buy a home and provides potential homebuyers with an idea of what kind of financing is available to them. Knowing this information can help homebuyers narrow down their search and give them an edge when it comes to negotiating. Ultimately, getting pre-approved for a loan can help save lots of time and hassle when searching for the right property.
This article was contributed on Nov 27, 2023
