Ro Caddick-Kilduff's Blog
Preparing to buy a home is a long and stressful process for many. You’ve spent months, or even years, saving for a down payment, planning your future, and building your credit to ensure you get the best possible interest rate on your loan.
Then you find out, when getting preapproved for a mortgage, that your credit score dropped by a few points. So, what gives?
There’s a lot to understand about how credit scores affect mortgages and vice versa. In today’s post, I’m going to attempt to cover everything you need to know about how applying for a mortgage can affect your credit score so you’ll be prepared when it comes time to buy a home.
Prequalification, preapproval, and credit checks
There are a lot of misconceptions about what it means to be preapproved or prequalified for a loan. Some of it is due to the jargon that is used in real estate transactions, and some of it is just a marketing technique on the part of lenders.
So, what does it mean to be prequalified and preapproved?
The short version is that getting prequalified is a quick and easy process to determine whether you’re eligible to lend to and how much you’re likely to receive. It involves a quick review of your finances, and often includes either a self-reported or soft credit inquiry.
A “soft inquiry” is the type of credit check that employers typically use for a background check. It doesn’t affect your credit score, as you are not applying to open a new line of credit. In fact, many lenders’ process for prequalification is a simple online form that doesn’t even require a credit check. We’ll talk more about the difference between soft inquiries and hard inquiries later.
The simplicity of prequalification makes it a simple and easy way to get started. But, it isn’t always accurate in how well it predicts the type of mortgage and loan amount you can receive. That’s where preapproval comes in.
When you get preapproved for a loan you fill out an official application (you often have to pay for these). This will request documentation for your finances and assets, and will ask your approval to run a detailed credit report.
These credit reports are considered “hard inquiries” and are a vital step in getting approved or preapproved for a mortgage. However, they also, at least temporarily, lower your credit score.
Why hard inquiries lower your credit score
When any creditor, be it a bank or credit card company, is determining whether to lend to you, they want to know that you are a safe investment. To determine this, they want to know how frequently you pay your bills on time, how much you owe to other creditors, and how financially stable you are right now.
When you make multiple inquiries in a short period of time, it’s a red flag to lenders that you might be in trouble financially. Thus, hard inquiries will lower your credit score for 1 to 2 months.
Applying to multiple lenders: the silver lining
When borrowers apply for a mortgage, they often shop around and apply to multiple lenders. While it may seem that all of these hard inquiries will add up and drastically lower their credit score, this isn’t the case.
Credit bureaus take into account the source of the inquiries. If they realize that you are applying for mortgages, they will typically recognize this as rate shopping and group these applications together on your credit report, counting them only as a single inquiry. This means your score shouldn’t drop multiple times for multiple mortgage preapprovals that were made within a small time frame.
Now that you know more about how mortgage applications affect your credit score, you can confidently shop around for the best mortgage for you and your family.
After you complete a home showing, you may face a dilemma. If you like a house following a showing, you may want to set up a follow-up showing or submit an offer to purchase. Or, if you are dissatisfied with the results of a home showing, you may want to continue your house search.
It helps to know what to expect after you attend a house showing. Because if you know what to do following a showing, you may be able to speed up the process of going from homebuyer to homeowner.
Now, let's take a look at three tips to help you make the best-possible decision about a house following a showing.
1. Assess the Pros and Cons of a House
Performing a comprehensive home analysis is a must after a showing. That way, you can weigh the pros and cons of a residence and decide whether a house is right for you.
Think about how you felt as you walked through each room of a house. If you can envision yourself as the owner of a home, you may want to move sooner rather than later to submit an offer to purchase.
Conversely, if you find a house is in need of major repairs or simply does not suit your lifestyle, you should not hesitate to continue your house search. With a diligent approach to home evaluations, you should have no trouble discovering your dream residence in the foreseeable future.
2. Consider the Next Step in Your Homebuying Journey
When it comes to finding the perfect residence, it helps to plan ahead as much as possible. And if you have a plan in place for what to do after a home showing, you'll be better equipped than ever before to prepare for the worst-case scenarios.
For example, a home seller could accept a rival buyer's offer to purchase before you have time to consider your options following a showing. But if you have a backup plan in place, you can move quickly to continue your homebuying journey, regardless of how a showing pans out.
3. Collaborate with a Real Estate Agent
If you are unsure about the best course of action at a home showing's conclusion, you may want to consult with a real estate agent. This will enable you to gain expert insights into the housing market and make an informed decision about how to proceed with a particular residence.
A real estate agent is happy to teach you about all aspects of the housing market. Following a home showing, a real estate agent can meet with you and help you review all of the options at your disposal. And if you decide to submit an offer to purchase a house, a real estate agent will make it easy to put together a competitive homebuying proposal.
There is no need to worry about what to do after a house showing. Use the aforementioned tips, and you can boost the likelihood of making the best-possible decision following a home showing.
Do you know home selling lingo? If not, miscommunications may arise that prevent you from maximizing the value of your house. Perhaps even worse, you risk making poor home selling decisions due to the fact that you don't fully understand the real estate terms included in a home sale agreement.
Fortunately, we're here to bring clarity to assorted home selling terms that you may encounter as you proceed along the home selling journey.
Let's take a look at three common home selling terms that every property seller needs to know.
Over time, the value of your home may deteriorate due to age, wear and tear and other problems. This is referred to as "depreciation," and depreciation ultimately may impact your ability to get the best price for your house.
To find out how much your house's value has depreciated, it may be worthwhile to conduct a home appraisal before you list your residence. That way, you can analyze your house's strengths and weaknesses. You also can uncover innovative ways to boost your home's appearance both inside and out, thereby ensuring you can set the optimal initial asking price for your residence.
2. House Closing
A house closing refers to the final transfer of ownership from home seller to homebuyer. Thus, once you and a homebuyer are ready to dot the I's and cross the T's on a home sale agreement, you'll complete the house closing process.
During a house closing, all terms of a contract between a home seller and homebuyer must be met. Moreover, the home deed will be recorded, and the house will finally be sold.
The house closing is a key part of the home selling cycle. At this point, a home seller will receive final payment for a house and transfer ownership of the property to the buyer.
3. Real Estate Agent
A real estate agent plays a pivotal role in the home selling process, and for good reason. If you hire an expert real estate agent, you should have no trouble navigating the home selling journey.
Typically, a real estate agent handles all of the tasks associated with listing and selling a house. This housing market professional will help you promote your residence to potential homebuyers, host open houses and home showings and even negotiate with homebuyers on your behalf. Plus, if you receive an offer on a home, a real estate agent can offer honest, unbiased recommendations about whether to accept or reject the proposal.
You don't need to look far to find a qualified real estate agent in your area, either.
Real estate agents are employed across the United States. In fact, if you interview multiple real estate agents in your area, you can find a real estate agent who makes you feel comfortable and confident about selling your house.
Allocate the necessary time and resources to learn various home selling terms. With a clear understanding of home selling terms, you can avoid potential pitfalls throughout the home selling journey.
Your first week in your new home is an exciting time. It’s also a very busy one. There is just so much to do to get everything in order and settled in! Some things are more important to get done this first week than others. On the other hand, there are tasks you’ll be glad you completed your first week instead of putting them off.
Here’s your guide to your first week in your new home.
Start by opening new accounts for all of your utilities as soon as possible. These are the non-negotiables you simply can’t live without. These utilities include things like:
Internet, phone and cable/satellite
You’ll want to rekey all of the locks of your new home. You never know who has a key to the current locks. While you are having the locks rekeyed be sure to have extras made as well. Give backups to friends and family that you trust and consider getting a safe box for a spare key should you lock yourself out.
Plan to deep clean before you begin unpacking and settling in. Wipe down walls, mop floors, dust every cranny and hire a carpet cleaner. If you plan on repainting do it while the rooms are still (mostly) empty. You will only have to move furniture once and it will be easier to clean up afterward.
Refer to your inspector report for maintenance tasks. Plan them out by making necessary arrangements. Hire professionals, schedule out weekend projects and purchase necessary supplies. If this is your first house you’ll want to purchase equipment to take care of your new yard. Especially items like a lawnmower, hose and gardening tools.
Change your address on important accounts such as bank accounts, credit cards, health insurance, memberships, subscriptions and workplace benefits. Hopefully, you’ve already put in your change of address with the post office. However, this is only for a few months which is why it’s important to make these changes now.
Locate all of your shut off valves in case of emergency. Know where the main shut off valves are as well as the minor ones. Familiarize yourself with your circuit breaker and make sure that it is appropriately labeled. Now is a great time to come up with an emergency plan and course of action for your family in case anything should happen.
The first week in a new home can feel very hectic. There is just so much to do in such a small amount of time! However, there are always tasks that need to take priority. Use this guide for your first week in your new home to get everything in order with the least amount of friction during the process.