April 2, 2023
How to Shop for a Mortgage Without Hurting Your Credit

How to Shop for a Mortgage Without Hurting Your Credit

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How to shop for a mortgage without hurting your credit? Sure, you’ve been saving for a down payment on a new home, but unless you take steps to protect your credit, it can be difficult to qualify for a mortgage and buy your dream home.

How To Shop For A Mortgage Without Hurting Your Credit

Here are some tips for how to shop for a mortgage without hurting your credit, so you can get a low rate when you’re ready to buy your new home.

1. Shop with a purpose

Shop around for a mortgage with the best rates, but don’t let your search be too long. Your credit score generally allows for a shopping time frame when shopping for a mortgage. That means multiple requests you make within a certain time period will count as one comprehensive inquiry into your credit for credit scoring purposes. A big hit to your name can temporarily knock a few points off your score.

Depending on the type of credit score used by the lender, this comparison window can take anywhere from 14 to 45 days. Keep your search focused and short to stay safe. Preferably limit it to 14 days.

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If you can’t stick to that timeline, don’t panic. The effect of a thorough investigation will wear off over time and is only a small part of your credit score.

2. Get your credit reports and check for errors

Mistakes happen. And when they do, you don’t want to be the last to know about them. Lenders look at specific aspects of your credit history and financial situation to qualify you for a mortgage, so it pays to know what’s in your credit file before applying.

You are entitled to free annual online credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. Go through them line by line and check for inaccuracies. If you find an error, file a dispute with the appropriate office as soon as possible. This can be done online, by telephone, or by email.

3. Pay your credit cards

If your credit card debt is maxed out, lenders will probably think twice about offering a mortgage because both your credit utilization ratio and your debt-to-income ratio will be high. That’s why it’s a good idea to start paying off those balances before you file any mortgage applications.

Make more than the minimum payments on your cards each month. Not only will this increase your creditworthiness and reduce your overall debt burden, but it will also save you money on interest and show potential lenders that you are serious about paying back what you have borrowed.

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4. Get Prequalified

If possible, prequalify for a mortgage before you even buy a home. Prequalification does not require a hard credit check. It is a lender’s estimate of how much home you can afford based on the financial information you provide.

Once you’ve narrowed down your housing options and checked your own credit reports for errors, you can take the next step and get pre-approved, which will affect your credit score.

5. Stop Requesting New Credits

If you’re moving to a new house, you might also be interested in a new car for your driveway and furniture to fill your rooms, but wait until you get that mortgage before applying for new credit cards and car loans. † You want your credit reports to look as clean as possible when you sign up, and many new questions can raise red flags for lenders.

While delaying credit card applications can be a good move, it’s generally not a good idea to close all your paid cards at once. Doing so can increase your credit utilization ratio and make your credit history appear shorter and less varied, which can also affect your score. Instead, plan to keep your accounts open, at least until your mortgage is approved.

6. Save aggressively

You’re now focused on getting a mortgage, but don’t forget to protect your credit score after you’ve been approved. Once you make a down payment on your new home, your savings can make a dent and you may be tempted to rely more on credit. In the short term, that may be fine, but making it a long-term habit can seriously hurt your credit score.

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If your savings account is running low, consider cutting expenses whenever possible and starting an emergency fund. This way you don’t have to use your credit card as a crutch in an emergency. Protecting your credit score will also make it easier for you to apply for mortgages and other lines of credit in the future.

How To Shop For A Mortgage Without Hurting Your Credit – Frequently Asked Questions

What are the current mortgage interest rates?

Current mortgage rates vary based on many factors, including location and the type of loan you are applying for. Consult reliable sources, such as the CFPB, for the current mortgage interest rate.

How much mortgage can I pay?

Banks use your debt-to-income ratio to determine how much mortgage they want to give you. You can find out for yourself with a mortgage calculator.

What Credit Score Is Needed to Buy a Home?

Different types of loans have different credit scores. For example, FHA loans are willing to accept lower credit scores.

How do I improve my credit score?

There are many ways you can improve your credit score, including reducing your credit usage and paying on time.