Credit Inquiries and Home Loans
Since a minimum credit score is required for most loan programs, the first thing a lender will do is check to see if your score measures up – this is known as a "credit inquiry." There are two primary types of inquiries, a hard and a soft inquiry. A hard inquiry will have a direct and almost immediate impact on credit scores whereas a soft inquiry will not. A hard inquiry is one where the individual has made a direct request for new credit. The request can be for a new automobile loan, installment loan or a credit card. In these cases, a single, somewhat isolated request for new credit will have a marginal impact on credit scores.
Multiple requests for credit during a compressed period of time, however, will eventually harm scores. The logic is that several quick requests for new credit could indicate an individual is on the cusp of financial hardship, and the new credit accounts are intended as a budgetary life-preserver. These varied, numerous requests can keep companies from issuing new credit. After the 2008 housing market crash, this was modified to allow for multiple requests for the same type of loan within a 45-day window – these will count as one request.
A soft inquiry is relatively benign and won't affect scores at all. A soft inquiry is when someone requests their own credit report for a review. Soft inquiries are often made by employers or landlords, and won't hurt your score.
When it comes to applying for a home loan, it's important to understand the details. Let's say you've applied for a mortgage loan, but you haven't heard anything back from the loan officer. After two weeks you want to apply for a mortgage at another lender, but you're concerned that another hard inquiry will ding your credit score. While this is a valid concern, the guidelines set forth by the Consumer Financial Protection Bureau have ruled that multiple requests for the same type of account within a 45-day period count as just one inquiry.
Therefore, there is no harm in shopping around when it comes to finding the right home loan.