Does Getting Pre-Approved Hurt Your Credit?

Many first-time buyers hesitate to get pre-approved because they think it will hurt their credit.

The impact on credit scores is generally less than five points, says MyFico. And, you’ll likely recover these points in short order. But that decrease could jeopardize your mortgage approval or give you a higher interest rate.

Plus, a hard inquiry on your credit stays on your report for years.

Is it worth getting pre-approved if you’re just starting on your homebuying journey?

Pre-Approval Based on a Soft Credit Pull

You may be able to get a pre-approval with no impact on your credit.

Lenders that use Freddie Mac’s approval systems can run a computerized mortgage analysis with a soft-pull credit report. A “soft pull” does not show up on your credit and does not impact your score.

For other loan types like FHA, VA, USDA, a skilled loan officer can issue a pre-approval for some applicants based on a strong soft credit report.

This is a win-win for the lender and borrower as far as cost, too. A soft pull is just a few dollars, while a full credit report can be $150 or more.

But if you’re not eligible for a soft pull, it could still be worth getting a pre-approval early in the homebuying process.

Get started on your pre-approval.

Is It Worth a Hard Credit Inquiry to Get a Pre-Approval?

Not everyone will receive a pre-approval based on a soft pull. Many will need a traditional credit report.

Is it worth getting pre-approved, then?

If you’re serious about homebuying, yes. Many buyers start looking at homes online based on their best guess. They used an online calculator and read some articles.

But mortgage approval is complex. You may have figured out the numbers, but something in your credit report, employment history, or bank accounts could disqualify you from a mortgage.

Or, it can seriously limit your potential home price.

For example, you make $150,000 a year on paper. But you’re a contractor, and you write off $50,000 per year in expenses. You only make $100,000 per year to the lender.

Or, if you’ve only been self-employed for 10 months, you make $0 per year as far as the lender is concerned.

These situations will come to light in the pre-approval process. It’s best to know them long before you start looking for homes – even online.

So, yes, a pre-approval is worth the five-point hit to your credit score.

What If the Credit Pull Disqualifies You?

In rare cases, a hard credit inquiry can disqualify you from mortgage qualification.

For example, you need a 580 score for an FHA loan with 3.5% down. The credit pull drops your score to 578.

It’s still worth applying for a pre-approval. You know where you stand and what to work on.

That’s a much better outcome than finding a house you love only to find out you don't qualify.

Does It Hurt Your Credit To Get Pre-Approved Every Few Months?

A pre-approval expires after 60 to 90 days.

In today’s market, finding a home could take much longer. So should you keep getting hard inquiries every few months?

If you’re pre-approved, you should probably not get a new hard inquiry every few months. You have a 45-day window in which to get multiple hard inquiries. These will only count as one inquiry.

After that, a new pre-approval will count as a new hard inquiry. This could drag down your score.

You shouldn't get pre-approved again unless one of the following has happened since your last pre-approval:

• Interest rates have risen significantly

• Your income or employment have changed

• You have significantly less in savings

• You took on new debt

• Your credit takes a hit

• Another financial change occurs

If your financial profile is more or less the same, there’s a good chance you can refresh your expired pre-approval when you find a house.

Does Your Credit Score Drop If You Get Pre-Approved with Multiple Lenders?

It does not hurt your score to shop with as many lenders as you’d like within a 45-day window, says the Consumer Finance Protection Bureau.

However, it will be hard to compare costs without a property. The lender can’t lock in a rate yet, and fees will be estimates.

At this point, you’re interviewing lenders to see which one might do the best job when you find a house, not shopping for the best deal.

It doesn’t help much to have two or three pre-approval letters, either. One letter from a reputable lender is enough to get an accepted offer on the home.

Pre-Approval: Worth The Small Credit Hit

Most buyers will not notice the tiny credit drop, nor will it affect their homebuying prospects.

The first-time homebuyer’s goal is to know where they stand and address issues early. This can’t be done without a pre-approval analysis from a lender.

Start your pre-approval here.