If you’re shopping around for mortgages, you’ve probably heard about pre-qualification processes – or maybe even received a pre-qualification offer in the mail. Lots of prospective homeowners hold misconceptions about what exactly pre-qualification is and how it works, and it leads them to opt into poor mortgage deals.
But by understanding how pre-qualification works, you’ll be able to find the right mortgage for you – at the best possible rate. So what is mortgage pre-qualification, and what isn’t it? Here are three common pre-qualification myths that you may have heard.
Myth: Mortgage Pre-qualification Commits You To A Specific Lender
Many homeowners mistakenly believe that being pre-qualified for a mortgage commits them to a specific lender. In truth, being pre-qualified only creates an opportunity for a lender to work with you.
The pre-qualification process doesn’t involve any loan contracts and doesn’t require you to pay the lender. Few homeowners know this, but you’re actually not at all committed to any particular lender until you sign the closing documents.
Pre-qualification is also generally a free process, although some lenders will ask you to pay the $20 fee it costs them to check your credit report. No reputable lender will ever ask you for more than $20 during pre-qualification.
Myth: Rate Shopping Hurts Your Credit Score
Another common myth is that shopping around for the best rate will hurt your credit score as a result of having multiple credit checks done. In some cases, unethical lenders may tell you this is true in order to discourage you from checking out other lenders. But according to FICO, mortgage inquiries aren’t handled the same way that other credit inquiries are.
Your FICO score ignores all mortgage inquiries made within 30 days of scoring – so if you happen to find a mortgage within 30 days, you’ll benefit from the same rate you’ve always had. Additionally, all mortgage credit inquiries that are made within a specific time period are treated as one credit inquiry. Under the old FICO scoring system this period was 14 days, but the new system has extended it to 45 days.
Mortgage pre-qualification may seem like something you don’t want during a house hunt, but in truth, it’s really just a small gesture lenders make in order to make the mortgage process faster and simpler. If you’ve been pre-qualified for a mortgage, you’ll still need to go through the standard application process before you’re approved. To learn more about the mortgage application process, or to apply for your new mortgage today, contact a mortgage professional near you.