What You Need to Know About a Mortgage Credit Check for First-time Buyers

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Bridget Houlihan

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Jan 21, 2021

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The housing market in Columbus, Ohio is facing a number of hurdles for first-time buyers and sellers alike. Interest rates are climbing, housing sales are slowing down despite being competitive, and inventory remains slim. In fact, Spectrum News 1  a significant increase in frustrated first-time buyers as properties sell at an average of 20 percent more than the year before.

Despite more than 1,000 home sales being noted by the Columbus Realtors Multiple Listing Service in January of 2022 alone, that shows a marked decrease that is likely due to the huge disparity between the supply of homes for sale versus the demand from plenty of would-be bidders. If you’re a first-time buyer, it’s worth thinking about these challenges on top of the existing considerations you need to make when purchasing a home.

For starters, you should think about how a mortgage credit check will impact you as a homebuyer.

1. A Hard Credit Check Will Temporarily Lower Your Credit Score

When applying for a mortgage, a lender is going to pull what is called a hard credit check. This will allow them to get detailed information on your credit history and be one of the determining factors in whether or not you get approved. Every time you get a hard credit check, your credit score is affected. There are a few important details regarding this that you should take note of:

As noted in our article ‘6 House Hunting Tips When Looking to Purchase Your Dream Home’ your credit score is one of the most important things to take care of when trying to buy a home. A low score hurts your chances of getting approved, so make sure you keep watch of your credit score before and after a hard credit check.

Depending on your existing score, you can take a hit of around five points. This shouldn’t hurt too much if you have a good score, but it’s still best to limit hard inquiries in a short span of time. Should you get approved, paying your mortgage in time will actually help you make up for the lost points easily.

2. A Hard Credit Check Can Stay a While on Your Report

Although other financial bodies may initially do soft inquiries that don’t show up on your credit report, mortgage credit checks are hard inquiries that will stay on your credit report. This is an important distinction to remember when you are shopping around for mortgage lenders or waiting on approval. A few good notes to remember are:

According to Upgraded Points hard inquiries can stay on your credit report for just over two years. That said, the more time passes, the less impactful they are in terms of score consideration.

If you get more than one credit check (from preapproval or loan estimation) within a span of 45 days, it may be recorded as just one inquiry in your credit report. This is helpful to keep in mind if you’re planning to go to multiple lenders.

3. The Result of Your Credit Check Can Affect Your Approval

The truth of the matter is that your inquiry can be a make-or-break factor when trying to get a mortgage. After all, lenders use it to gauge how trustworthy you are and whether or not you are too risky to be approved for a mortgage. Here’s exactly how it affects your approval:

Lenders will take a look at your credit score. This will give them a good idea of how good you are with money and whether you have the financial capacity to maintain a loan. If your score falls below 670, you may be considered more of a risk and be offered higher interest rates and fees. Should you go under 580, you may have a harder time getting approved with certain lenders.

Your credit check will also reveal your history in terms of payments, lines of credit, loans, accounts you hold, and limits. This lets lenders assess your financial habits and figure out if you are responsible enough to pay your debts on time.  

Time Magazine notes that mortgage rates are at peak numbers in 2022. The average 30-year fixed-rate mortgage has doubled reportedly due to the highest inflation in four decades. With this in mind, you may want to take a look at your own credit report so you can estimate which interest rates you will likely qualify for.

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