This is a very common (and valid) question that I get among homebuyers, especially first time homebuyers. The fear is by having a lender run your credit report your credit scores will drop so why do that unless you are sure you have found a house and are ready to make an offer. The reality is that an occasional credit inquiry will not have a material impact on your credit scores. While it may drop your score a couple of points, in only very rare cases will this result in a borrower not being able to qualify for a mortgage. Your TransUnion FICO score (mortgage scoring model) has a range of 309-839 and the minimum score to qualify for a conventional loan is 620 so there is a spread of 219 points between the low end to the high. The average FICO score is somewhere in the low to mid 700s (depending upon what article your read) so as you can see it isn't very likely to cause your loan to be denied.
There are plenty of advantages to having your credit report ran for mortgage pre-approval that far outweigh the possibilty of your score dropping a few points. First of all, before you take time out of your day (and gas) to travel around touring houses, having your realtor do the same and set up appointments where the sellers are re-arranging their schedules to prep their home and leave so you can tour it undisturbed, you need to make sure that you can qualify for a house in that price range. If you haven't had your credit ran you may not realize that there are things on your report that need addressed and it is much better to address them when you aren't in a rush (ie..have a house that you want to buy and can't wait a few weeks or few months to address them). You may find out that by improving your score a couple of points can have an impact on the interest rate that you will qualify for. At the time of mortgage pre-approval I advise my clients if there is anything that can be done that will have an impact on their interest rate. For example, I can use a "what-if simulator" that will tell me how many points your credit score will increase if you pay down or payoff a credit card. While there are websites that allow you to access your credit and/or credit score, that score that you will get on those sites are based on a different scoring model (you can tell because the range of scores will be different) so the only way to know for sure is to have it ran by a mortgage professional. Also, once I have ran your score I can use that credit report for 4 months so as long as you close on a house within that time you know what your score is for the loan purpose. I don't have to run your score every four months however. If you haven't found a house in that period of time, unless there is a reason to be concerned we wait to repull until you have found a house that you are interested in making an offer on. Secondly, you need to make sure that you are comfortable with the mortgage payment of the house in the price range you are looking. There are a lot of websites which will give you an idea of what your payment will be (some are more accurate than others) but until you talk to a mortgage professional you won't know how accurate those figures are. For instance, if you aren't putting 20% down you likely will have to pay mortgage insurance. The cost of this mortgage insurance depends on the % you are putting down as well as your credit score. So many website can only estimate the amount. Also, there are different types of mortgage insurance. Many of my clients elect to buy out the monthly mortgage insurance by either paying a little more in closing costs or choosing a slightly higher interest rate.
Lastly, if your situation is one where your approval is not certain we will take the extra step at mortgage pre-approval to run your loan through an automated underwriting system to make sure that you will be approved when you do find the house of your dreams (we can only take this step if we have a recent credit report that we have ran for you).
To summarize, if you are interested enough to start to tour houses to possibly purchase, you owe it to yourself, your agent and the sellers to take 10 minutes to talk to a mortgage professional and have your credit report ran to make sure that you can qualify for a loan and are in the correct price range.
For more information on the homebuying process and other tips please checkout my website at www.FirstStepToBuyAHome.com and www.AJMmortgage.com
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