The first step in the process is to check your credit report and score using a free web site or app. These services enable you to review your credit report and monitor your credit score for free, which offers multiple benefits for prospective mortgage borrowers. First, you can identify and address any issues on your credit report. For example, there may be items like a late payment or account in collections that you were unaware of. The second advantage of these services is that you can provide summary credit information, including your score, to lenders when you request a mortgage quote. That way the lenders you shop do not need to pull your credit report when they provide mortgage pricing, which prevents your score from being hit. Although the score provided by the free apps may be moderately different than the score used by the lender when you apply for a mortgage, it should be sufficient for you to receive a quote.
Understand the Credit Score Required for a Mortgage
You may ask if using the free credit monitoring services referenced above hurts your credit score? The answer is no because these services use what is called a “soft inquiry” so you can check your own credit information. In short, you are not penalized for checking your report and monitoring your score. When lenders pull your credit report for a mortgage, this is called a “hard inquiry” which can cause your score to drop in the near term. If you stick with the free credit services, however, your score should not be affected, plus you can keep an eye on your credit profile moving forward.
With your credit information in hand, the next step is to determine what lenders to shop. We recommend that you compare at least five lenders as this should give you a sufficient number of quotes to find the best loan terms. We also recommend that you shop different types of lenders including a national and local bank, mortgage broker, credit union and mortgage bank (basically a bank that only does mortgages and does not take deposits). Shopping a wide variety of lenders gives you more options and improves the likelihood that you will find a lower mortgage rate. You can use the table below to compare lenders in your area.
After you have identified the lenders you want to shop, you simply contact them and request a mortgage quote. You can contact lenders by calling them or by submitting a form on their website. Many lenders prefer a phone conversation so they can get their hooks into you so it is important to tell them upfront that you are only shopping lenders -- just like you would browse the selection in a department store. When you contact lenders you should expect to provide summary personal and financial information including your monthly gross income and debt expenses, employment history and expected down payment. This enables the lender to determine what size mortgage you can afford.
When you ask for a mortgage quote from the lender, it is very important that you request that they not pull your credit report and offer to provide your score and summary information from the credit monitoring service. This should be an easy request to follow but some lenders insist on pulling your credit. In this case, politely decline the request and move on to the next lender. It is important to highlight that lenders need your permission as well as you social security number and date of birth to order your credit report so if you do not provide this information the lender cannot pull your credit.
Use our personalized mortgage quote feature to receive free, no-obligation quotes from up to five lenders. Our easy-to-use quote form requires minimal information and does not negatively affect your credit score.
Some lenders also say that they need to review your credit report to provide accurate loan terms but the summary information from the free credit monitoring services should be more than sufficient for the lender to provide a mortgage quote. After all, you are just shopping at this stage of the process. By holding firm and insisting that the lender not pull your credit report, you can obtain mortgage quotes without your credit score being adversely impacting by multiple hard inquiries.
Finally, some lenders flat out refuse to provide mortgage quotes. This refusal can be for a variety of reasons but it is usually because they do not want to compete for your business, probably because their loan terms are unattractive. There is nothing wrong with this and you should continue shopping by contacting a different lender. Be assured there are hundreds of lenders willing to provide quotes to earn your business.
With multiple mortgage quotes in hand (and your credit score intact) you should be well positioned to select a lender. While you should focus on finding the lowest interest rate, closing costs are also an important consideration. In short, you are looking for the combination of mortgage rate and closing costs that best meets your financial goals.
Understand How to Compare Mortgage Proposals
We also encourage you to negotiate with lenders to achieve better loan terms. For example, if one lender has quoted you a lower mortgage rate but higher closing costs than another lender, see if the lender offering the lower rate will also match the lower closing costs. Some lenders may be unwilling to negotiate but it never hurts to ask. Additionally, because you have obtained multiple quotes you have the leverage in the situation. And remember, a little negotiating can save you thousands of dollars.
Use our Mortgage Comparison Calculator to compare proposals with different interest rates an fees
Please note that comparing quotes is different than getting pre-approved or applying for a mortgage, which involves a much higher level of documentation and diligence by the lender. When you get pre-approved or submit your loan application, the lender pulls your credit report, which is a hard credit inquiry, but there is no need to do that when you are shopping lenders. When done properly, comparing mortgage quotes can save you a lot of money, without incurring the cost of a lower credit score.
Although a lender should never pull your credit report without your permission it is important to highlight that multiple credit inquiries within a 45 day period only count as a single inquiry for one of the most commonly used credit scoring models -- FICO -- which minimizes the impact on your score. For some other scoring models, the time frame is 14 days. This is also why we recommend that you shop for a mortgage within a relatively short period of time as opposed to over several months. This approach enables you to compare multiple mortgage lenders while minimizing the potential impact to your credit score.
We should also highlight that credit inquiries within the past 30 days do not affect your current credit score. This means you are not penalized for shopping for a mortgage in the near term but your score may take a slight dip after 30 days. This is another reason why it is in your best interest to compare loan terms without lenders pulling your credit report and why you should move quickly when you decide to get a mortgage, if possible.
“What exactly happens when a mortgage lender checks my credit?” CFPB. Consumer Financial Protection Bureau, March 3 2017. Web.