How To Shop for a Mortgage Without Hurting Your Credit

Article Summary:

To shop for a mortgage without hurting your credit, you need to start by getting your financial ducks in a row. This includes your income, savings, and credit reports. Then you can shop for a mortgage without hurting your credit by opting for soft inquiry preapprovals when available and doing your mortgage shopping over a short time frame.

If you want to save money on your mortgage, it’s important to shop around. Unfortunately, shopping for a mortgage can damage your credit score quickly if you are not careful. Have you ever wondered if it’s possible to find and qualify for a mortgage without dinging your report?

Believe it or not, it is possible to go rate shopping without the headache. The key to shopping for a mortgage without harming your credit is to prepare your finances for qualification. Then, look for companies that offer “soft pull” inquiries and focus on getting prequalified.

How to shop around for your mortgage without hurting your credit in 8 steps

Are you ready to get started on your mortgage application? Is homeownership in the cards for you sooner rather than later? You can find out what to expect while rate shopping by doing the things below.

1. Do your mortgage shopping over a short time frame

If you want to get a mortgage, it’s important to know the rules on inquiries. A credit inquiry occurs when a lender does a hard pull on your credit report through one or more of the three credit bureaus. If you are applying at multiple mortgage companies, you have to keep your hard inquiries all within the span of 14 to 45 days.

If you go beyond the two-week time frame, you will end up with multiple hard inquiries on your credit report. This is why multiple attempts to get a mortgage can hurt your credit score. Your goal is to have everything treated as one inquiry rather than separate inquiries on your report.

2. Pull your credit reports and check for errors

Credit reports are not infallible. In many cases, you may find that your report has errors and inaccuracies. You can and should dispute inaccuracies with any of the three major credit bureaus reporting them. Sometimes, disputing an error can be the difference between a good credit score and a bad credit score.

In the case of identity theft, you might be able to get entire lines taken off your credit report. And discovering the theft early could prevent further damage to your credit. Check your report regularly, and keep a score monitoring service on hand!

3. Pay off your credit cards

Part of shopping for a mortgage is realizing that you have to beef up your overall FICO score to the point that your credit is sterling. The higher your score, the lower the interest rates will be on your mortgage loan. This means credit card debt is your enemy when it comes to approval.

To get the best mortgage rate possible, you have to lower your debt-to-income ratio. The easiest way to do this is to focus on paying down your credit card balances. Along with increasing your credit score by a few points, this also means you can avoid paying more interest.

You don’t have to completely pay off your credit cards to get this handy perk. As long as you keep your utilization rate under 30 percent of your total credit limit, credit agencies will mark you as a responsible borrower.

Credit utilization is approximately 30 to 35 percent of most credit score formulas. By just paying down one of your credit cards, you can qualify for a better home loan.

4. Get prequalified

Not sure whether you can afford the home that you want? Aren’t sure you should hit up that one mortgage lender you like best? You can often get a better idea of your prospects by getting prequalified.

If you get prequalified with multiple lenders (at least three), you can find out what you can expect in terms of mortgage rates. You may have to give them a general idea of your income and an estimate of your expected down payment, but it’ll get your foot in the door.

Note: When asking for prequalification from a lender, make sure they will do it without a hard credit inquiry before you agree to it. If the lender requires a hard inquiry, you might want to pass until you’re 100 percent sure you’re ready to buy a house. You don’t want to risk multiple credit inquiries dinging your credit report.

 

5. Stop applying for new credit

If you want to get a mortgage, you can’t be asking for auto loans at the same time. Heck, you shouldn’t even be opening up new credit card accounts. Different types of loans will register as multiple inquiries, even if they are done at the same time.

Multiple inquiries will get reported to credit bureaus. This, in turn, will lower your FICO score and show up on your credit report as high-risk behavior. Leave your mortgage shopping time to shopping for that mortgage.

6. Save aggressively

The higher your down payment, the lower your mortgage rates will be and the more money you will be approved to borrow. Keeping that money stored up for when you apply is going to ensure you get the home loan you want. You can read more about this phenomenon in this study.

Most FHA loans will require a minimum down payment of around 3.5% of the loan total. However, this doesn’t mean that all you should try to save up. If you save enough to put 20% down, your chances of getting approved at a great rate will greatly improve.

7. Research multiple mortgage lenders

Different lenders will offer different perks and have different benefits and drawbacks. While your particular experience might vary from the norm, it’s generally a good idea to read up on mortgage providers. This helps give you an idea of what to expect.

Some lenders will have stricter requirements than others. Some may be notorious for having low interest rates but high fees. Others may have special programs they’re famous for participating in. The more you learn about lender reputations, the more likely it is that you will apply to the right lender for your needs.

8. Run the numbers before you even apply for a home loan

One of the smartest things you can do before you apply for a home loan is to find out your credit score, then find a mortgage loan calculator. Enter your goal as far as your ideal borrowing amount would be, plus what you have for money down and your credit score.

Play around with the results to get a better idea of what lenders will be willing to offer you. Once you do, you’ll have a better understanding of what interest rate you can expect to be offered.

Though it may seem silly to work in hypotheticals, there is a reason to do this. Your mortgage rate can be compared to the answers you get in the calculator as a measuring stick. This can help you determine if a loan is a good deal.

FAQ about mortgages and credit scores

How many times can you apply for a mortgage without hurting your credit?

There is no limit on how many times you can apply for a mortgage loan. Credit bureaus will not ding you for multiple applications as long as they are done in a short period of time. Two to six weeks is generally the time frame you’re given before your credit score suffers.

How much does your credit score drop when applying for a mortgage?

How much your credit score drops depends on your credit history and the credit company you apply with. A temporary drop between 15 to 40 points is typical. It’s important to recognize that these drops are not permanent and can often be “shaken off” in a matter of a year to two years.

How many days do you have to shop for a mortgage?

For the most part, you should finish your mortgage shopping in 14 to 45 days. If you choose to do a bunch of soft inquiries months in advance, the loan estimate and approvals may not hold water by the time you officially apply.

Does preapproval hurt your credit score?

Mortgage preapprovals can harm your credit score, but it depends on how the preapprovals are done. If they require hard credit inquiries, they can lower credit scores. Most, though, will do a soft credit check before they approve you. If this is the case, they will not harm your credit score.

Does owning a home help your credit score?

If you took a loan for your home, owning a home can help your credit score. This improves your ability to have a solid payment history. It also improves the number of loan types you have. Since a healthy credit mix shows that you can handle more credit, having a mortgage is a good thing for your credit score.

How far back do mortgage lenders look at credit inquiries?

Credit inquiries generally only last for two years on a credit history report. So, that’s as far back as they can go. Most mortgage lenders will not look past the last year as far as inquiries go. Each lender will have its own requirements, though. So, don’t expect decisions to be uniform.

Why did my credit score go down after paying off my mortgage?

When your mortgage is fully paid off, you might expect your financial situation to improve. It will, but your credit score won’t. This is because paying off the loan in full means your loan account will close. Closed accounts reflect negatively when it comes to your credit history, even if they are paid in full.

How high does your credit score have to be to qualify for a mortgage loan?

Technically, you can qualify for a loan with a credit score as low as 550. However, most mortgage companies will not lend to someone with such a low score. This makes you a huge credit risk, and the truth is, lenders don’t want to do foreclosures if they don’t have to.

Assuming that you will get approved if you have the bare minimum score is not a good way to go rate shopping. In fact, it’s a bad way to work with most personal loans, too. If you want to get the best rates and ensure that you will be approved, you should try to clean up your finances as soon as possible.

Mortgage shopping in a nutshell

The bottom line here is that your mortgage shopping should take your whole situation into account. Beefing up your credit score, researching lenders, bolstering your savings for a down payment, and relying on soft inquiry pulls can make a huge difference in your mortgage rates.

At the end of the day, you will really have to do your research and apply when you are ready for a mortgage. The more you work to make your financials good, the better your results will be.

Key takeaways

  • Try to stick to preapprovals that are done with soft inquiry pulls if you want to prevent credit score damage before the official approval.
  • When applying with multiple lenders, make sure you keep the time frame within a matter of weeks.
  • Clean up your credit score; save up for a good down payment; and run the numbers through a calculator.
  • Check the reputation of every lender you consider.
  • Remember to watch for more than just the interest rate. Fees matter, too!

Start your search today!

When it comes to finding the right home loan for you, things can be rough. At SuperMoney, we make it easier through our lists of the best home loans, as well as our mortgage reviews. Whether you are looking for your first mortgage loan or looking to refinance, we have the right lending solutions for you. Check out our lender lists for more detailed advice.

View Article Sources
  1. 2021 Mortgage Industry Study — SuperMoney
  2. Buying a House? Here’s How to Choose the Best Mortgage Lender — SuperMoney
  3. How to Get the Best Mortgage Interest Rate — SuperMoney
  4. Mortgages — USA.gov
  5. What exactly happens when a mortgage lender checks my credit? — Consumer Financial Protection Bureau (CFPB)