Like many people, you have been told that having a good credit score is imperative because it will help you to afford a nice home one day. This is very good advice because when you apply for a mortgage preapproval letter, a lender will look at your credit score to help determine how much they are willing to lend and it plays a part in determining your interest rates on that loan.
Because you knew the value of that credit score, you have spent time and a lot of effort to make sure it grew and stayed high for the day you decided that it was time for the house hunting to begin. So, you are off to a great start, you have good credit and you want to buy a house. The first step after you figure out what you like and where to look when you are ready to start house hunting is to acquire mortgage preapproval letters from multiple banks or lenders. This is an important step to make sure that real estate agents and sellers take your bid seriously when your dream house is on the line.
How do I get a mortgage preapproval letter?
When you are looking to get a mortgage preapproval letter you will apply with banks and lenders that you would potentially like to ask for a mortgage loan. They will have you fill out an application, which may have a fee associated depending on the organization (this may be deducted from closing costs depending on the institution as well), and have you provide them with some information about yourself. They will ask you for verification of your employment and a list of assets and debts; this will cover most of your financial information (as a note, be ready to show about three months’ worth of bank statements and pay stubs). They will also ask for proof of identification; for that, you will need your driver’s license or a passport, or in some cases your social security card.
Another thing they will check is your credit score. This is the place where people worry about getting a mortgage preapproval letter because they know that the lender looking at their credit score will pull their credit report with a hard inquiry. Hard inquiries will lower your credit score by a few points. So, to answer the question above, yes, getting a mortgage preapproval letter will hurt your credit score by a few points.
Now, you may be wondering why you should get multiples of these if they hurt your credit score and your credit score helps to determine your interest rate. Well, the interesting thing about these hard inquiries is that if you have multiple in the same period they all count as one, so you are safe to apply with several different banks and lenders.
It is important to apply to multiple vendors for a couple of reasons. One is to make sure that the credit score you worked so long to cultivate does not go down for just one application, but also interest rates will be different between different lenders. When you make lenders and banks compete for your business you will ultimately lower your interest rate because they will want to be your lender. Being certain that you have the lowest interest rate possible will save you money throughout your mortgage loan because when you finally land that dream house your first payments will be mostly interest payments. The lower your interest rates, the faster you will get to paying off your principal (the actual loan your mortgage is based on) and start building equity in your home.
This is what you put all that time and effort into. You worked on your credit score based on the good advice you received a long time ago, and it will pay off when you are signing the papers at closing. You will look at your new house over a cup of coffee or tea and see the fruits of your labor, your home with the low interest rates you got from keeping a good credit score, which only lost a few points when you applied for multiple mortgage preapproval letters.
Be prepared to make an offer on the right home. Get preapproved today.
