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I am looking to move in ~6-9mo and was thinking of getting pre-approved with a lender to see what I am approved for now. I would like to get pre-approved to get a better idea of what I can expect to get, however, since I am not looking to move for 6-9mo if I get another credit check (pre-approval process) again closer to when I move will this check I get now affect my credit? Obviously, I want to do all I can to keep my FICO score of 786 in good shape. Thanks for any thoughts!-Chris
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redsox2004 added to your Favorite Fools list</b?

Cripe I had to - fellow Red Sox fan - we'll get 'em next year!

There is no need to go through the pre-approval process if you're planning on buying in six to nine months. Because of fluctuation in interest rates I'm not aware of anyone that will lock your rate in that far in advance, even with your walk-on-water FICO of 786. Wait until you are 45 to 60 days out to go through and do the process.

To answer your question, you get "it depends." it depends on the kind of check to your credit that is done to get the pre-approval. Not all pre-approvals are an APPROVAL, but a light check to confirm that you meet basic requirements. Also remember that when you do the house buying process in earnest, all checks to your credit related to looking at buying a house count as one, assuming it ends with you making a purchase.

Trust me, unless you have some unknown skeleton in your closet with a 786 FICO, you're pre-approved.
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Thanks Milligram46 - the 2004 Red Sox World Series DVD heals all the wounds! Rest easy my friend! :>)

I should have been a bit clearer, I want to find out how much I will be approved for and my thoughts are a "pre-qualify" is a rough estimate and a "pre-approval" would be more accurate. I would like to find out how much of a mortgage I would qualify for even though I don't plan to buy until spring. Should I just seek to get pre-qualified then instead to see what I can expect to get? Thanks again! -Chris
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For a rough estimate you could try the calculators at an online loan site like e-loan.

Debra
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Greetings, Chris, I think you ought to be safe if you decline permission to do a credit report pull (if you do not give anyone your social security number, for instance) until you are REALLY READY to start credit shopping. I imagine that if you went to a loan officer with your credit report(s) and score in hand (cloaking your social security number) and were prepared to answer any questions regarding income and savings compared to debt, they should be able to give you a reasonable ballpark estimate without affecting your credit score.

You can be a lot lower than 786 and still qualify for the top lending rates, and I am not totally sure how much each credit pull costs you (maybe 2-5 points a hit but others with more knowledge may need to chime in here - where is eudaimon when we need him?). This is one way to get an idea about what you would pre-qualify for without affecting your score for the worse. You also might try asking this question on the Buying or Selling a Home board for another look at an answer. On that board is at least one mortgage broker (dwdonhoff) who could give you further information.

xraymd
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Whoops, make that eudaimon6 - sorry!

xraymd
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What Debra said...
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I agree for the reasons to wait, but I do have to disagree with this:

To answer your question, you get "it depends." it depends on the kind of check to your credit that is done to get the pre-approval. Not all pre-approvals are an APPROVAL, but a light check to confirm that you meet basic requirements. Also remember that when you do the house buying process in earnest, all checks to your credit related to looking at buying a house count as one, assuming it ends with you making a purchase.

My understanding is that anytime a credit check is initiated by the consumer (short of checking their own credit report) it is a hard inquiry.

Pre-approved offers that come in the mail are soft inquiries and do not lower FICO.

I work in credit cards, not mortgages, so maybe they are different and can post soft inquires, but I would doubt it based on my knowledge of FCRA.
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I should have been a bit clearer, I want to find out how much I will be approved for and my thoughts are a "pre-qualify" is a rough estimate and a "pre-approval" would be more accurate. I would like to find out how much of a mortgage I would qualify for even though I don't plan to buy until spring. Should I just seek to get pre-qualified then instead to see what I can expect to get?

They can do quite a bit without a credit check. That will get you a rough estimate and preserve your FICO.

If they do a credit check, since you are initiating it, I believe it will be a hard inquiry which will knock your FICO. Over 6-9 months the impact will lessen, but why risk it at all?
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Pre-qualify is where you share your financial information with a lending professional or someone quite familiar with loans and that person sees what you are likely to qualify for. No credit checks are done. It really helps to know your FICO score, so you may want to request your credit reports and pay for the credit scores from all three major CRAs--if you request this information yourself, there is no hit on your FICO score. If you are married and your spouse will be on the mortgage, have your spouse also request the credit reports from the three CRAs and credit scores, too. A lending professional could take a look at the credit scores, your credit reports and see what typical amounts you would qualify for and what the payments would likely be at today's rates. (Interest rates may go up in 6 to 9 months so don't plan on the top dollar amount you could qualify for today.)

Since the lender hasn't personally pulled your credit reports or credit scores, nor verified assets, pre-qualification doesn't carry as much weight as pre-approval.

Pre-approval is where you share your information and the mortgage professional also orders your credit reports and the mortgage-specific credit scores, as well as verify assets. (The algorithm used for mortgages is a little different from the algorithm used for credit cards.) This one will have a hit on your credit score, but a single inquiry in a 6-month period would likely be small. However, if you want to show a pre-approval letter to the seller's agent so the seller knows you are serious and already have financing arranged, your offer will have a better chance of being accepted by the seller than a similar offer without a pre-approval letter.

Obviously, I want to do all I can to keep my FICO score of 786 in good shape.

If I recall correctly, you need a FICO score of at least 720 to qualify for the better interest rates (all the best programs except for a couple of the best rates for specialized situations). So, basically, you are likely to qualify for just about any advertised mortgage, as long as you meet income requirements and don't have too large existing debt payments that won't be paid off when you buy the new home.

You can then basically take the going mortgage rate for your state that Bankrate.com is reporting and use that to plug into a house affordability calculator (such as one of the Fool calculators) to see how much of a 30-year FRM you can afford, such as the "How much home can you afford?" calculator referenced by this page: http://www.bankrate.com/brm/rate/calc_home.asp You can play a number of what-if's and read about mortgage advice at Bankrate.com.

Also, The "Buying or Selling a Home" board <http://boards.fool.com/Messages.asp?bid=100144> is frequented by a couple mortgage lenders that can speak authoratively about mortgages, which is a good source for information.

Another good source of general information is The Mortgage Professor: http://www.mtgprofessor.com/ and, if I recall correctly, it also has a Home Affordability calculator.

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if you request this information yourself

Maybe I should qualify this to make it perfectly clear.

If you request the credit reports and credit score directly from the CRAs, there is no credit score hit. (However, this can't be used for a pre-qualification letter nor for the actual mortgage application.)

If you have a lending officer request this information on your behalf, there will be a credit score hit. (Both pre-qualification and the actual mortgage application will require that the lender or loan officer obtain the information from the CRAs.)
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If I recall correctly, you need a FICO score of at least 720 to qualify for the better interest rates (all the best programs except for a couple of the best rates for specialized situations). So, basically, you are likely to qualify for just about any advertised mortgage, as long as you meet income requirements and don't have too large existing debt payments that won't be paid off when you buy the new home.

Sub-prime 80/20 deals down to 580
Conventional VHA/FA financing at just 600
Better rates start at 640 -- basically out of the sub-prime world for just about any financing scenario
680 -- rates get even better
720 -- rates get even better
740 -- slight improvement for more exotic mortgage strategies or JUMBO scenario

So you are correct about the difference between 720 and 786 not being all the big.
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Great, thanks for the info!
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Wait a minute - does this mean that a person's
credit rating is lowered just by a bank
looking up their credit rating before
making a loan?

Why?

That sounds like having your grade point average
lowered if the college checks your grades
before admitting you.

Can anyone explain this?
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Why?

That sounds like having your grade point average
lowered if the college checks your grades
before admitting you.

Can anyone explain this?


If you have a lot of hard inquiries (inquiries where you gave permission to be evaluated for a new loan or credit card) you begin to look a little bit more risky. This is because you are trying to get more credit, and in theory, you could max it out as soon as you get it.

Applying for credit makes you look less risky than if you are 30 days+ late paying, so your credit will take a smaller hit than if you had paid late. Also inquiries age off faster and don't impact your score for as long as other hits (late pays, bankruptcy, etc)

DizChick
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Wait a minute - does this mean that a person's
credit rating is lowered just by a bank
looking up their credit rating before
making a loan?

Why?

That sounds like having your grade point average
lowered if the college checks your grades
before admitting you.

Can anyone explain this?


If someone has "hard checks" and then no credit extended after the hard check, there is an indication that the credit was not extended becuase they were not credit worthy. Hence each "hard check" YOU inititiate for the purpose of extending credit lowers your score a few points. If you have a lot of checks over a short period of time it can have a short term large impact. Keep in mind that if you are shopping for a car or a home, and you are shopping rates (apply at several places), and then get a loan, all of those related checks count as ONE, not three, five, etc. etc. etc.

It is not a perfect system, but like so many other things in our country it works and probably as good as we can get it to work.
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If you have a lot of hard inquiries (inquiries where you gave permission to be evaluated for a new loan or credit card) you begin to look a little bit more risky.

It's also worth noting that the FICO system is entirely based on real-world statistical results. Some bank manager isn't just deciding that you look more risky because you applied for credit. It's historical data - hard statistical fact - that a correlation exists between making credit inquiries and an increased likelihood of future default. The whole FICO system exists to gather such data and identify such patterns in it, so that lenders can make informed decisions about the likely future behavior of their customers.

- Erik
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It's also worth noting that the FICO system is entirely based on real-world statistical results. Some bank manager isn't just deciding that you look more risky because you applied for credit. It's historical data - hard statistical fact - that a correlation exists between making credit inquiries and an increased likelihood of future default. The whole FICO system exists to gather such data and identify such patterns in it, so that lenders can make informed decisions about the likely future behavior of their customers.

- Erik


Erik I completely agree, but like all statistics there is a bell curve, and folks on the high end of that curve are getting a smack they don't deserve.

FWIW...
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folks on the high end of that curve are getting a smack they don't deserve.

Perhaps we'll have to agree to disagree, but I'd argue that they do deserve it. If you're engaging in behavior that decades of historical data shows as correlating with a slight risk, then the system is perfectly justified in treating you as a slight risk. Why are you (the royal "you", not you personally Milligram) special?

It's like how everybody thinks they're a better-than-average driver. Well, that simply can't be true for everyone. Sure, you (royal "you") know that your finances are perfectly responsible and stable. You'd never default, right? Well, some small percentage of folks in similar situations as yours do default - and you never know what might come up to make you the representative of that small percentage.

I hasten to add that the hit from a single hard inquiry on a FICO score is minimal - rarely more than 5 points and almost never 10. Inquiries can't wreck a good score - your personal credit history is a far more reliable indicator than accumulated historical data. But the latter can't be entirely disregarded, and the FICO system knows that.

- Erik
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There is a window for mortgage inquiries. All inquires within the window are treated as one for the purpose of your FICO score. The window use to be 14 days and has recently been increased. I am not certain if the new window is 30 or 45 days.

Debra
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Debra you're right - but I too do not know if it's 30 or 45 days.
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I am not certain if the new window is 30 or 45 days.

http://boards.fool.com/Message.asp?mid=22282502

According to Dave Donhoff's post there, it's a 30-day rolling window for mortgage inquiries and 14 days for automotive inquiries. Doesn't say about other types of loans.

- Erik
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If I remember correctly, not only are all inquiries in that 30 (or 14 for auto) day window treated as one, but they also won't have *any* effect until that window expires.

So it's not like your 2nd and 3rd inquires (to comparison shop) will see a ~5 point worse score than your first one.
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It's also worth noting that the FICO system is entirely based on real-world statistical results. Some bank manager isn't just deciding that you look more risky because you applied for credit. It's historical data - hard statistical fact - that a correlation exists between making credit inquiries and an increased likelihood of future default. The whole FICO system exists to gather such data and identify such patterns in it, so that lenders can make informed decisions about the likely future behavior of their customers.


Erik,
Thanks for clarifying. I did mean to include that it was based on real results, not just some FICO whim.

DizChick
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Wait a minute - does this mean that a person's
credit rating is lowered just by a bank
looking up their credit rating before
making a loan?

yes


Why?

That sounds like having your grade point average
lowered if the college checks your grades
before admitting you.

Can anyone explain this?


Looking for new credit is a risk factor. People who are nearing the end of their financial rope will start aquiring new credit to try to stay above water.

So yes, looking for a new line of credit lowers you score a little. Looking for lots of credit in a very short time really drops it like a rock.

It's pure statistics.
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Erik I completely agree, but like all statistics there is a bell curve, and folks on the high end of that curve are getting a smack they don't deserve.


Actually it does take the bell curve into account and those at the top of the bell curve get a smaller ding than those at the bottom. (For the exact reasons you state, a high FICO person having one hard inquiry is less troublesome than a low FICO person with one hard inquiry.)

(It is a very detailed algorithm with lots of different "scorecards" for different segments of the population.)
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Perhaps we'll have to agree to disagree, but I'd argue that they do deserve it. If you're engaging in behavior that decades of historical data shows as correlating with a slight risk, then the system is perfectly justified in treating you as a slight risk. Why are you (the royal "you", not you personally Milligram) special?


Actually at the upper end you do get a lighter tap and it is for those same historical reasons. A person with a high FICO and lots of available credit and one hard inquiry isn't as likely to be a risk as someone with a low FICO, close to their limits, and one hard inquiry.

Statistical history is the best thing we have to go by.
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http://boards.fool.com/Message.asp?mid=22282502

According to Dave Donhoff's post there, it's a 30-day rolling window for mortgage inquiries and 14 days for automotive inquiries. Doesn't say about other types of loans.


I'd be very careful of his advice. I don't know what credit scoring he is talking about, but my FICO contacts (from all three bureaus and from Fair Issac Co.) have not heard any of what he states there.

It may be some mortgage industry specific credit scoring (I'm in credit cards and I know there are industry specific scoiring in other industries I don't know) but this is not FICO.
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If I remember correctly, not only are all inquiries in that 30 (or 14 for auto) day window treated as one, but they also won't have *any* effect until that window expires.

No, all mortage inquiries are counted as one, and all auto loan inquiries are counted as one, and all cards and other inquiries are counted individually.
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Anyone who wants to email me a fax number will receive copies of training materials that describe FICO's system of correcting for consumer loan shopping. Multiple inquiries within a short period of time are considered "loan shopping, and they are treated as a single inquiry. I'll send stuff snail mail if anyone wants, too.

Donhoff knows what he's talking about.
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That sounds like having your grade point average
lowered if the college checks your grades
before admitting you.

Can anyone explain this?


DizChick replied:
If you have a lot of hard inquiries (inquiries where you gave permission to be evaluated for a new loan or credit card) you begin to look a little bit more risky. This is because you are trying to get more credit, and in theory, you could max it out as soon as you get it.</>

Diz is correct and I'll add my 2 cents. Not sure who makes the rule or if it hits your FICO, but mortgage or auto loan inquiries within a 30 day window (I think) only count as one "ding" against your score. It's multiple other hard inquiries (credit card app, personal loan) that ding your score more. If that the 30 day rule is correct, during the window, pre-approving with one or ten mortgage/auto lenders shouldn't make a difference.

If anyone knows that for sure, please ring in!

HF
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Those of you who have opened Emigrant accounts--did you close your ING account? Why? why not? How hard was it?

They may not affect your score, but they do count as inquiries when lenders evaluate your report. When I obtained my mortgage, the lender had an issue with too many inquiries, and I had to clarify in writing that the 10 entries on my report(s) were from 3 mortgage lenders and a cell phone carrier, switching service.

- Lan
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