When you are buying a home, a car, opening a credit card or anything else that involves taking out new debt, the lender will pull a credit report and you will have an inquiry. So what? Why does that matter? What if you didn't open the account or use the credit card?
It does matter to mortgage lenders. When the underwriter looks at your file and sees several inquiries, they will want to know what they are for. You will need to write a letter of explanation for each inquiry and tell what it was for and if there was a new account opened. If there was a new account opened, we have to verify the account and the payment and use it in your mortgage qualifications.
To an underwriter, inquiries mean you are shopping for credit. If it's several inquiries for mortgages, you will need to explain that, but typically you can only get one mortgage at a time, so it's not going to affect your credit score. Usually mortgage inquiries within a 30 day period are only counted as one inquiry. If you are out shopping and several stores pull your credit report, it can lower your score as you can open more than one credit card at once. If you are close to the limits in what you can qualify for, it may affect your approval.
Sometimes when you are looking at buying a car, the car dealer will send your file to several lenders and again you may have several inquiries, that can also affect your credit score.
Once you have your approval, that doesn't mean the lender isn't going to check your credit again. Right before closing most lenders will pull a credit refresh (a soft pull) that tells us if there is new debt or any new inquiries. If there are any inquiries or new debt, we have to requalify you. If it's just inquiries, we will need an explanation and you have to state there is not any new debt. If there is new debt due to the inquiry, we will need to get proof of the new payment and include that in your debt. If you charge up your credit cards, we will use the new payment and it could affect your approval.
Once you are looking at buying a new home or refinancing your current home, limit any inquiries on your credit report and do not buy a new car or anything else that you might finance! If you aren't sure how this could affect you, talk to your lender or call me. The last thing any of us want to happen is to have to turn a mortgage approval into a denial!! If something happens and you have to replace a car or something else, talk to your loan officer first and let them know what is going on. We can help you figure out what you need to do and how much a new car payment, etc would affect your mortgage approval.
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants – Email – Website
