When a borrower looks to get a mortgage loan, the bank requires a pre-approval in order to process the mortgage application. During the process, the lender checks the borrower's credit score and report to determine if he can afford to take on the new debt. Each time a borrower's credit is checked, it causes a small dip in his credit score. Having multiple lenders check your credit score within a short time can cause a significant dip in it.
Compare Options Without Hurting Credit
To compare options without hurting your credit score, print off your own credit report from AnnualCreditReport.com. Provide two to three lenders with the credit report and ask them to use that in lieu of pulling your credit for quotation purposes. Ask for a Good Faith Estimate and Truth in Lending Statement from each lender. Compare the two quotes based on these documents. The lowest overall mortgage is the one with the lowest APR (annual percentage rate) listed on the Truth in Lending Statement. The APR is the numerical representation of the overall cost of the loan, including both the monthly interest rate and the closing costs.
Pre-Approval
In order to get officially pre-approved, the lender will have to pull your official credit report. However, since you used your credit report while rate shopping, when the lender pulls your credit report, the resulting effect will be minimal. Provide them with your documentation including two months of pay stubs and bank statements and two years of tax returns. Additional documentation, including retirement accounts and divorce decrees may be required.
Protect and Raise Your Credit Score
Before the lender pulls your credit report, be sure to do all you can to raise it. Keep your credit card balances to less than 30 percent of their limits to keep your credit score high, and pay off all judgments, liens, and collections. Remove all errors on your credit report prior to applying for new credit. Errors can be as simple as loan amounts that are too high or too low to closed loans that are still listed as open. Sometimes if you have a similar name as a relative, the credit bureau may accidentally list one of your relative's debts as yours. Have the lender remove these errors as soon as possible. Additionally, make sure that all loan payments are current and not late.
Getting to the Closing Table
Remember, a lender can check your credit again in the days leading up to the closing table, especially if pre-approval happened several weeks prior to closing. Do not apply for additional loans with other companies or purchase new furniture for your house. Keep spending to a minimum prior to closing to ensure the process goes to completion. Once the closing is over, you may begin making purchases for your new home.
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