Getting Financially Prepared For the Home-Buying Journey

 Understanding Hard vs. Soft Credit Inquiries in Home Buying

When applying for a mortgage or getting pre-approved for a home loan, credit checks play a key role in determining eligibility and interest rates.  It is important to understand the difference between hard and soft credit inquiries to make informed decisions during the home-buying process.

Hard Credit Inquiry

A hard inquiry occurs when a lender or financial institution checks a buyer’s credit report to make a lending decision. This typically happens during:

• Mortgage applications
• Credit card or loan applications
• Refinancing requests

Impact:
Hard inquiries can lower a credit score, usually by a few points, and remain on the report for up to two years. Multiple hard inquiries within a short period for the same type of loan (like a mortgage) are often treated as one, minimizing the impact.

Purpose in Real Estate:
Hard inquiries are essential for final mortgage approval. They give lenders a full picture of a buyer’s creditworthiness, helping determine loan terms and interest rates.

Soft Credit Inquiry

A soft inquiry happens when credit is checked for informational or pre-qualification purposes, not for a lending decision. Examples include:

• Checking personal credit scores
• Pre-approval or rate shopping
• Background checks by employers or landlords

Impact:
Soft inquiries do not affect credit scores and are only visible to the individual, not to lenders.

Purpose in Real Estate:
Soft inquiries are useful for early stages of home buying. Buyers should get pre-qualified through a soft check to understand their potential loan options without impacting their credit.

Key Takeaway

• Soft Inquiry: No credit score impact; ideal for pre-qualification.
• Hard Inquiry:  Credit score impact; required for final loan approval.