Applying for a mortgage loan can seem like a daunting task especially when borrowers are asked to provide so much of their financial information on their loan application. One crucial part of this process is a credit check and although people fear this hard inquiry will affect their credit score, it’s important to understand why it’s required and how lenders will assess the information that appears on your credit report.
Here are three reasons why you’ll need a credit check:
-Your credit report will show scores from all three credit bureaus (Transunion, Equifax, Experian) but lenders will specifically use the lowest median FICO score of all borrowers on the loan to qualify.
-The minimum payments on the revolving and installment debt that appear on your credit report will be used to calculate your debt to income ratio, therefore affecting the possible loan product you’ll be able to qualify for.
-Your FICO score will affect your interest rate and if you require mortgage insurance (conventional loans) your credit score will also be one of the factors that affect your monthly payment. It’s important to note that borrowers have a 45-90 day window where their credit can be pulled by multiple lenders and it will only count as one hard inquiry.
Pulling your credit will not significantly lower your credit score, at most between 2-5 points, but if you are serious about becoming a homeowner you’ll understand that it is an essential part of the process.