Homeownership is an important milestone in life that can provide comfort and security to your family for years to come. With about 65% of American households in possession of a mortgage, chances are you will purchase your new home with a mortgage.
Today, we’ll cover what you need to know in order to build your credit both when applying for a mortgage and for all the years that follow. Financial tools, like the MoneyLion Credit Builder Plus membership, which offers the Credit Builder Plus loan, make it easier for you to secure low mortgage rates and build up your credit score.
Here is what you need to know about homeownership and does applying for multiple mortgages affect credit scores.
What to consider before applying for a mortgage
When applying for a mortgage, you’ll want to prepare your credit score and learn how lenders operate. You’ll also want to do your homework and calculate what you can realistically afford. If you can, consider seeking advice from a local realtor who can advise you on current market trends and the best areas to buy in terms of long-term value.
Figure out how many mortgages you can apply for
When you are ready to apply for a mortgage, there is no limit to how many mortgages you can apply for. You can work with as many mortgage lenders as you want to, and it’s smart because this makes it possible to compare various rates and offers before choosing one in particular.
It is a good idea to obtain pre-approval for a mortgage as well so that you can move quickly when you find the home you want to purchase. Most real estate professionals say that applying for multiple mortgages only counts as one hard inquiry, as long as those applications were all submitted within the same 45-day period.
For that reason, it’s a good idea to apply for multiple mortgages around the same time so that only one hard inquiry appears on your credit report.
Hard credit inquiries will impact your credit score
While a single hard inquiry should not affect your credit score, if you have too many hard inquiries, that can lower your credit score. You can mitigate this issue by applying for mortgages from multiple lenders at the same time.
Also, be sure to avoid applying for too many new credit cards, auto loans, or other loans if they result in a hard inquiry and you’re planning to apply for a mortgage the following year. If you don’t, the hard inquiry will still appear on your credit report when you go to apply for the mortgage.
Take time to prepare your credit score
The best way to get a mortgage with favorable terms is to prepare your credit score ahead of time. Consider the year leading up to your mortgage application process as your time to increase your score so that you can save on interest rates long-term.
Even in the months before applying for a mortgage, the MoneyLion Credit Builder loan can help you get your credit score where it needs to be so that you’ll qualify for a mortgage.
Figure out how much you can afford
While it can be tempting to dream about a home worth millions, if your salary and savings don’t match those goals, it will be difficult to obtain a mortgage. Lenders usually use the one-third formula, meaning one-third of your income before taxes is the maximum limit for your monthly mortgage payments.
This means that if your take-home pay before taxes is $9,000 each month, then the maximum monthly mortgage payment lenders will approve you for is $3,000. The house that you can get for that mortgage rate will be affected by how much you can put down and the interest rate you qualify for.
Build your savings
If you have significant assets or savings in your name, lenders are going to be more inclined to offer you better terms. Use the MoneyLion app to track your spending, save more each month and prepare for your mortgage application.
Even small amounts of money will add up over time. The earlier you start saving, the more you will have ready for your down payment, which will increase your chances of getting a mortgage.
How does applying for mortgages affect your credit score?
Applying for a mortgage may cause a minor dip in your credit score, but it’s no more than five points. However, if you make a habit of applying for a mortgage every month for six months or more, it can more adversely affect your credit score. Try to keep the hard inquiries on your credit score to no more than five per twelve-month period to ensure that applying for a mortgage won’t harm your credit score furthermore.
3 tips to manage inquiries while going for a loan
When you apply for a loan or a mortgage, doing so will cause a hard inquiry to appear on your credit report. While a single hard inquiry will only cause a minor dip in your credit score, multiple hard inquiries can harm your score drastically. Here is how to apply for a home loan and manage the number of inquiries!
Limit other applications
When you apply for a loan, like a mortgage, limit the number of other hard inquiries that are applied to your account. Now is not the time to apply for three more credit cards just because they offer travel points. Instead, focus on your goal of obtaining a mortgage at the best rate possible before applying for other loans.
Pay off debt
One of the best ways to mitigate the effect of hard inquiries on your credit score is to make sure your credit score is exceptional in other areas. This includes paying off all of your credit cards and your revolving credit on time. Also, make it a point to pay off as much of your debt as possible.
Sign up for the Credit Builder membership through MoneyLion
If you want to give your credit a boost either before or after your report sustains hard inquiries, a MoneyLion Credit Builder loan is one of the fastest ways to build your credit and compensate for the temporary credit dip caused by hard inquiries. Our Credit Builder Plus program can help you establish or rebuild your credit over 12 months and monitors your credit score 24/7.
Repair your credit score after you purchase your home
After applying for mortgages over the course of several months and after successfully securing a mortgage to purchase a house, you might see a decrease in your credit score. In this case, it’s time to repair your credit score.
A MoneyLion Credit Builder Loan will lend you money with no hard credit check. You can also use the 0% APR Instacash cash advance to pay for unexpected expenses on your new home. Extra cash while building credit? What could be better?!
Increase homeownership odds
If you are prepared ahead of time with a solid amount of savings and a good credit score, the process of how to apply for a home loan is relatively simple. As long as you apply for mortgages with multiple lenders within a 45-day period, your account should only show one hard inquiry.
Whether you’re preparing to apply for a mortgage or looking to rebuild your credit after a home purchase, MoneyLion’s tools will help you reach your financial goals.
Additionally, you can use the direct deposit option in the MoneyLion app to help you save up for a down payment, while the Credit Builder Loan helps you repair your credit score. Together, you’ll have the tools you need to increase the odds of homeownership and create total financial freedom for your family!
FAQs
How many times can you pull credit for a mortgage?
There is no limit to how many times you can pull credit for a mortgage. Generally, multiple credit checks within a time frame of 45 days will fall under the same credit check in the eyes of credit bureaus.
How many hard inquiries is too many in a year?
Six hard inquiries per year is considered too many, though an even lower number might affect your credit score. Aim for fewer than four hard inquiries per year.
Do mortgage lenders look at closed accounts?
In some cases, yes. Once you close an account, it may appear on your credit report until it has been paid off in full. After that, it usually takes anywhere from one to two months until the closed account no longer appears on your credit report.
How long does it take for a mortgage to show up on a credit report?
It usually takes anywhere from 30 to 60 days for a new or refinanced mortgage to appear on your credit report.
