I Heard It Through the Grapevine
This week’s “Rock” pick, as it relates to current-day “rate shoppers,” is the 1968 chart-topper “I Heard It Through the Grape Vine” by Marvin Gaye. In my 40 years of being in the mortgage industry, I have now heard many interesting things that our clients have listened to “through the grapevine” from friends or even other mortgage bankers. One of these current mortgage folklore tales is that having a “hard pull” on your credit will hurt your credit scores significantly. “Hard Credit Pulls” enables mortgage lenders to accurately determine the borrower’s creditworthiness, providing an accurate pre-approval letter to give to the potential seller when making an offer on a home. Whereas a “soft pull” only pulls from one of the three credit bureaus and may or may not be accurate when determining an overall pre-approval and, more importantly, being able to get an accurate rate quote since rates and PMI payments (if applicable) are determined by the middle score of the three scores for the borrower. So, if you had a soft pull from one of the bureaus and it reflected a 781 credit score but your three scores, once a hard pull is done, reflects the 781 and then 747 and 751…there may be a notable difference in the rate you were quoted as well as your PMI payment if required.
According to Forbes Magazine, Hard credit inquiries generally have a minor impact on your credit scores, if any. Yet just because credit inquiries are less influential compared with other credit scoring factors doesn’t mean they don’t matter. FICO (Fair Issac Corporation and one of the credit scores on your credit report) states that one new inquiry will generally lower a credit score by less than five points. As you can see, a “hard” credit pull has a minimal effect, if any, on your overall scores and gives the lender an accurate picture of not only your creditworthiness but also allows them to provide you with an accurate rate quote for your mortgage rate as well as what your possible PMI payment will be when putting less than 20% down. In most cases, based on my experience in the business, as long as you keep your “hard” inquiries within a 10–14-day period, it has little to no effect on your scores. Unfortunately, there are lenders out there who will scare you from having your credit “hard” pulled again from a competitor after they have done it, so you will not “shop” your rate with another lender. As a seller, do you want a pre-approval letter that knows all three scores or just one, when most lenders use all three scores to make a final credit decision?
Remember… the BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
Thank you for reading this blog. I hope that the facts and insights I share provide value to you.
If you’d like to allow me to invade your inbox and receive a weekend update from me each week, please provide your name and email address, and I’ll start sending over more facts and insights like you just read, as well as current market rates and news. If you have a topic you would like me to consider covering, please feel free to send it over. Who knows… I may write about it!
Blog post date: Thursday, June 6, 2024
