One question that comes up frequently when talking FHA loans involves whether or not a borrower’s credit scores are affected by applying for pre-approval for an FHA mortgage loan. While we aren’t experts in credit reporting, and the FHA loan rules found in HUD 4155.1 do not address this issue, a bit of research into this issue turns up some interesting facts.
According to the Kiplinger Magazine’s, “Could Mortgage Preapproval Hurt Our Credit?”, any kind of loan application has the potential to “ding” your credit rating. That, Kiplinger reports, is according to Barry Paperno, consumer operations manager for Fair Isaac (the company that created the FICO score system).
“Typically, you would see a drop of five points or less,” says Paperno in the Kiplinger piece, which adds, “…when lenders request a copy of your credit report as part of the loan-application process, their requests are considered hard inquiries, as opposed to the soft inquiries that occur when you or existing creditors check your report. A hard inquiry stays on your credit report for two years and affects your FICO score for a year.”
Borrowers who are worried that such a drop may affect their eligibility for an FHA mortgage loan may wish to contact the FHA directly by calling 1-800 CALL FHA. Ask for a referral to a local HUD-approved housing counselor who can help with pre-purchase issues including FICO score information.
If a five point FICO score drop is enough to put your loan in jeopardy, the pre-purchase counseling option could be a quite valuable one.
It is always best to go into an FHA loan application armed with as much information as possible. Pre-purchase counseling can not only help you prepare for the application process, but it may also inform the timing of your application–those who come to the FHA loan process with 12 months or more of on-time payments, for example, are much more likely to get a loan approved than those who do not.
Do you have questions about FHA home loans? Ask us in the comments section.