Preapproval is a letter from the lender that shows his willingness to lend you a certain amount for the house; that is why when you are buying a new home, getting preapproval for a mortgage is the most challenging part, as it helps you narrow down your search to houses in your price range. This preapproval process also uncovers some of the potential issues that can cause your mortgage application rejection.
Getting preapproved for the mortgage signals the buyer that you are 100% serious about buying their house and lets sellers know that you have the borrowing power to back up the offer you make to purchase their home. One more thing, it tells real estate agents who work on a contract that spending time on you could pay off with a transaction.
Getting preapproved for a mortgage may affect your credit. Under the laws of credit scoring company FICO, if you get one inquiry, it may lower your credit score up to five points, and getting multiple hard questions may have a more significant impact. An investigation might do more damage to your credit if you have a short history or not many accounts.
Keep on reading this article to learn some essential aspects and drawbacks of getting a preapproved mortgage.
Why Do We Avoid Traditional Pre Approved Mortgages?
You get many advantages from pre-approved, but one thing is that it can impact your credit. The reason is that you give the mortgage company or lender permission to review your credit application and report from all the essential credit bureaus such as Equifax or Experian and pass your application credit score.
A notation refers to an inquiry that appears on your credit reports when a lender or company pulls your credit. Mostly, lenders use hard inquiry as they check your credit to make a lending decision.
Your credit reports have all the records of the inquiry, which temporarily affect your credit scores because they are associated with new debt. Traditional mortgage preapprovals usually use hard credit inquiry.
Make sure to select the lender or company that provides a rate quote and generate the streamlined preapproval letter that won’t impact your credit scores because you are not applying for credit. According to the FICO, getting group hard credit inquiries within 30 days will decrease your credit impact.
What are the Drawbacks of Getting Preapproved for a Mortgage?
It is pretty straightforward to get preapproval, but there are some drawbacks. Such as when you know that you are not ready to apply for a mortgage because your credit is not so great and you have too much debt, you apply.
Remember, it will hurt your credit more in the process. Because sometimes things do not go according to your plan, so make sure to make a plan B to rebuild your credit to increase the chances of getting a mortgage.
Suppose you don’t get the response from the lender, to wait too long for it because it is usually good for 30 to 60 days. If you have a letter, start hunting for your dream home and get ready to offer, because if you wait too long, you may have to restart all the processes.
Also, if you ignore your credit bills and get new debt during the mortgage process, it will negatively impact your credit, change your loan terms, and derail the loan altogether. It does not lie that if you get the preapproval, you will get the credit 100 percent.
If any of the information you provide with the official documents is wrong, that would change your final terms and cut down your credit score too.