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At Mortgage Maestro Group, we understand that the home buying or refinancing process can be overwhelming. Many homeowners feel anxious about their credit and qualification status. Let’s simplify—- by helping you understand the difference between soft and hard credit pulls, how it impacts your credit score, and mortgage application.

A soft credit pull is a credit check that does not affect your credit score. It’s used for pre-approvals and internal checks by lenders and credit card companies. On the other hand, a hard credit pull can lower your credit score and is used for new credit applications and loan reviews. Multiple hard inquiries within a short period can negatively impact your credit score.

In this article, we’ll provide an in-depth analysis of the credit pull process and its impact on your mortgage application.

Key Takeaways

• Soft credit pulls do not affect your credit score and are typically used for pre-approvals and internal checks.
• Hard credit pulls can lower your credit score and are typically used for new credit applications and loan reviews.
• Learn how to manage credit inquiries while protecting your score with soft and hard credit pulls.

Understanding Credit Inquiries

As a prospective homeowner, the mortgage application process can be overwhelming. One critical aspect that significantly impacts your eligibility and loan terms is your credit score. Maintaining a strong credit profile involves understanding the different types of credit inquiries and how they influence your creditworthiness.

Credit inquiries are essentially requests to view your credit report. There are two primary categories: soft and hard pull inquiries.

What Is a Soft Credit Pull?

A soft credit pull, also known as a soft inquiry, occurs when you or someone you authorize (like a potential employer) checks your credit report. Soft credit pulls do not affect your credit score and are commonly used for pre-approvals, internal checks, and promotional offers.

What Is a Hard Credit Pull?

A hard credit pull, also known as a hard inquiry, occurs when you apply for new credit, such as a mortgage or credit card. Hard credit pulls can negatively impact your credit score and remain on your credit report for up to two years.

Soft vs. Hard Credit Pull: A Comparison

The table below highlights the key differences between soft and hard credit pulls:

Understanding the distinction between soft and hard credit pulls helps you make informed decisions about your credit and increases your chances of securing a more favorable mortgage term.

Go deeper: How to Prepare Your Credit for Mortgage

Understanding The Mortgage Loan Process

The mortgage application process involves a meticulous evaluation of your financial health, with creditworthiness being a cornerstone. Lenders rely on credit pulls to assess your credit history, payment patterns, and overall risk profile. This information is crucial in determining your eligibility for a mortgage and the associated interest rate.

Credit Pulls and the Mortgage Process

• Pre-Approval Stage:  Lenders conduct a soft credit pull to assess your eligibility, which doesn’t impact your credit score and gives a general idea of your borrowing capacity.
• Formal Application and Hard Pulls: Submitting a formal mortgage application requires a hard credit pull, which can lower your credit score slightly. Shop for mortgage rates within a 45-day window to minimize the impact, as FICO counts multiple inquiries within this period as a single inquiry. 
• Verification and Potential Additional Pulls: During the mortgage approval process, lenders may request additional credit pulls to verify information, which can further affect your credit score.

Managing Credit Inquiries During the Mortgage Process

• Limit New Credit Applications: Refrain from opening new credit accounts or applying for additional loans during the mortgage process. New credit can negatively impact your debt-to-income ratio and overall credit.
• Monitor Your Credit Report: Review your credit report for inaccuracies or suspicious activity. Dispute any errors promptly to protect your credit score.
• Choose a Lender Wisely: Mortgage Maestro Group, our application process will minimize the number of hard credit pulls.
• Understand the 45-Day Rule: Take advantage of the 45-day window for mortgage rate shopping to reduce the impact of multiple hard inquiries.

Protecting Your Credit Score

Maintaining good credit habits is important. Pay your bills on time and keep your credit card balances low. Regularly monitor your credit score and dispute any errors on your credit report.

Understanding credit pulls and protecting your credit score can significantly improve your mortgage approval chances and help you secure the best terms.We 

Watch Here: How to Protect Your Credit When Buying a Home

Down Payment Requirements for Homebuyers in Denver, CO

Understanding down payment requirements is crucial for homebuyers. In Denver, Colorado, the down payment you need can vary based on the type of mortgage and your financial situation. Here are some key points to consider:

• Conventional Loans: Typically require a down payment of at least 3% of the home’s purchase price. However, putting down 20% can help you avoid private mortgage insurance (PMI).
• FHA Loans: Backed by the Federal Housing Administration (FHA), these loans are popular among first-time homebuyers. They usually require a down payment of 3.5%.
• VA Loans: Available to eligible veterans and active-duty service members, VA loans often do not require a down payment.
• First-Time Homebuyer Programs: Colorado offers several first-time homebuyer programs that provide down payment assistance. For example, the Colorado Housing and Finance Authority (CHFA) offers down payment grants and second mortgage loans to help cover the costs.

Colorado Homebuyer Stats

The median home price in Colorado is approximately $612,000. For a conventional loan, a 3% down payment would be about $18,360, while a 20% down payment would be $122,400. First-time homebuyer programs and grants can significantly reduce the amount you need to save upfront.

Check out the 4 huge changes coming to Denver in 2024

Credit Score Requirements for Buying a Home in Denver

Credit score requirements can vary based on the type of mortgage you are applying for. Here’s a general overview:

• Conventional Loans: Generally require a minimum credit score of 620. However, a higher score can help you secure better interest rates.
• FHA Loans: Require a minimum credit score of 580 to qualify for the low down payment advantage of 3.5%. If your score is between 500 and 579, you might still qualify, but you’ll need a 10% down payment.
• VA Loans: Typically, there is no minimum credit score requirement set by the VA, but most lenders prefer a score of at least 620.

Knowing these thresholds can help you make choices when exploring Denver’s housing market with Mortgage Maestro Group.

Expert Insights from Ray Williams at Mortgage Maestro Group

Ray Williams, a mortgage expert at Mortgage Maestro Group, highlights the importance of understanding credit pulls. “Many homebuyers don’t realize how credit inquiries can affect their scores,” says Williams. “Using soft credit pulls during pre-approval helps clients understand their borrowing power without impacting their scores.”

At Mortgage Maestro Group, we provide clear guidance to homebuyers. By focusing on credit inquiries, we ensure our clients are well-informed and prepared for the mortgage process.

Ready to buy a home or refinance your mortgage in Denver? Speak to one of our mortgage experts today!

Frequently Asked Questions

How does the pre-approval process for a mortgage affect my credit score?

During pre-approval, lenders perform a credit check, resulting in a hard inquiry. This typically causes a small drop in your score, usually less than five points. Multiple inquiries in a short period can have a bigger impact. Shop for mortgage rates within a short period to minimize this.

Can I obtain a mortgage pre-approval without impacting my credit with a hard inquiry?

Yes, some lenders offer pre-approvals based on a soft credit pull, which doesn’t affect your score. These are typically used for pre-qualifications, providing an estimate of how much you can borrow.

How does Mortgage Maestro Group use soft credit pulls during the pre-approval stage?

Mortgage Maestro Group may use soft credit pulls to provide pre-qualification estimates. These do not affect credit scores and help quickly assess creditworthiness. However, a hard inquiry is still required for a formal application.