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Credit Check: Why It’s Crucial?
Hi, I’m Stacey from Slam Dunk Home Loans, and today I want to talk about a crucial step in the home-buying process: checking your credit to get a pre-approval letter.
Why Check Your Credit?
When you’re ready to buy a home, one of the first things you’ll need is a mortgage pre-approval letter. But do you need to check your credit to get this letter? Many people ask me this question, and the answer is yes—here’s why:
Your credit is a crucial factor in determining your eligibility for a mortgage. Without checking your credit, we lack essential information about your financial status, making it impossible to provide a true pre-approval. Any reputable lender will pull your credit to ensure the pre-approval letter is accurate and meaningful. If a lender doesn’t check your credit, the pre-approval you receive isn’t worth much.
The Importance of Credit Checks
- Your credit score helps us decide which loan programs you qualify for. Different loans have different credit requirements. For example:
- FHA loans typically require a credit score of 580.
- Conventional loans often require a score of 620.
- Hometown Heroes loans may require a score of 640.
- Knowing your credit score allows us to place you in the correct loan program and check all the specific rules, such as maximum loan limits and debt-to-income ratios.
- Based on your credit score and the loan program, we can determine your interest rate. Loan programs have varying interest rates, and factors like your credit score and loan type can affect these rates. Additionally, there may be loan-level pricing adjustments that could impact your rate based on your specific situation.
Impact on Mortgage Insurance
- Your credit score can directly affect your mortgage insurance rate. This can significantly impact your monthly payment and how much you qualify for.
Understanding Credit Inquiries
- Hard Inquiries: These occur when a lender checks your credit report as part of a loan application process. While hard inquiries might slightly lower your credit score, they are a necessary part of obtaining a pre-approval.
- Soft Inquiries: These do not affect your credit score. Soft inquiries occur when you check your own credit or when a lender performs a preliminary check.
