You want to get pre-approved for a mortgage, but don’t want a hard credit inquiry – or “hard pull” – on your credit report.
Maybe you’re still a few months out from seriously looking for a home.
The best action plan is to get pre-approved with a soft credit pull – a credit inquiry that does not show up on your credit report or affect your score.
But how do you get a soft pull mortgage pre-approval?
Hard inquiry: Why many buyers avoid getting pre-approved, and it’s costing them
One of the biggest mistakes first-time buyers make is waiting too long to get pre-approved.
They save up a down payment and even start looking for homes online, just to find out there’s an issue with their credit, income history, or something else.
But by then, they’ve set themselves back a year or more. They could have been working on these issues all this time.
Much of this problem can be traced back to avoiding hard inquiries on their credit report.
Contrary to popular belief, hard inquiries don’t hurt your score significantly (less than five points, says Experian). And a few hard inquiries per year won’t tank your homebuying plans.
Still, it’s understandable that many buyers can’t afford to have their scores drop at all. Enter the soft pull pre-approval.
Getting a “soft pull” mortgage pre-approval
Luckily, the industry is coming around to the idea of soft credit pulls for the initial pre-approval.
Now, you can request a soft credit inquiry when you just need a pre-approval letter or are still months from seriously looking.
The soft pull does not show up on your credit report and has no impact on your score.
The loan officer will review the credit information and the rest of the file. Often, they can issue a pre-approval letter on the soft pull alone. Then, you start shopping for a home.
Which loan types accept a soft pull?
Strong borrowers can receive a pre-approval letter based on a soft pull for any of the major loan types — conventional, FHA, VA, and USDA.
However, some borrowers may only be able to receive a soft-pull approval when getting a conventional loan analyzed by Freddie Mac standards. The Freddie Mac computerized approval software is currently the only system allowing full approvals based on soft pulls.
For FHA, VA, and USDA loans, the lender can still use a soft pull to issue a pre-approval. But you must be a fairly strong candidate.
Otherwise, the lender will request to pull a traditional “hard pull” credit report so there are no surprises after finding a home.
When will I need a hard credit inquiry?
If you received a soft pull approval, your loan officer will pull a traditional “hard inquiry” credit report once you find a home and you are ready for underwriting.
Mortgage rules do not allow lenders to close a loan with a soft pull.
Because you’re at the final stages of approval, a hard credit inquiry shouldn’t affect you much. As mentioned, any credit score drops should be minor.
What if my score drops after the hard pull?
There’s always a chance a hard inquiry could drop your score slightly. In some cases, it could reduce the score below eligible levels. For example, if you have a 581 score, a hard inquiry could drop you to 579, disqualifying you for a 3.5% down FHA loan.
These cases are rare, but possible. The loan offer likely won’t issue a pre-approval without a hard inquiry.
If you grant permission, make sure you are ready to shop for a home immediately if you are approved after the hard credit pull. If you don’t find a home soon, you may need another credit report when that one expires.
When does a hard pull affect my credit the most?
Following are when you might experience a larger-than-average drop:
- You have multiple recent hard inquiries for various types of credit
- All your credit cards are maxed out
- You have recent late payments
These and other factors suggest that you’re overextended, yet still seeking credit, resulting in a lower credit score.
If you have a weaker credit profile, you may want to request a soft pull when you apply for a mortgage. As you work on your credit, time will pass since your last hard inquiry and a future hard inquiry won’t affect you as much.
A soft pull helps you avoid unwanted calls
Another benefit to a soft credit pull is that you’ll avoid unwanted calls from lenders buying “trigger leads.”
Trigger leads are when the credit bureaus sell your information – and the fact that you’re applying for loans – to lenders. This is a legal practice common with credit bureaus.
Consumers should opt out of triggered calls before they start the pre-approval process.
Opt out by going to OptOutPrescreen.com, the only site authorized by the credit bureaus for this purpose.
You’ll be removed from triggered lead calls after five business days.
Soft credit pull mortgage pre-approvals: a new paradigm for homebuyers
No one wants a hard inquiry on their credit report if it’s not necessary.
Now, you can apply for a mortgage and shop for homes without one.