DallasLoanGuy’s - Texas Home Loan Weblog

 I often get this question. “How many times are you going to pull my credit report?” Well, the answer to this is… as often as it takes to get my client the best possible deal!!

A credit pull by a lender is considered a ‘Hard Inquiry’. Which is a reporting of the borrower trying to establish credit. The FICO scoring model will recognize that you are trying to establish credit and lower your credit score a few points. You usually get those points back when you establish that account. “Soft Inquiries’ are permissable credit pulls by creditors that you have a wroking relationship. They may pull a soft inquiry on occassion to make sure their money is still safe with you or if thy are conteplating a limit increase on your revolving accounts…. soft inquiries do not affect credit scores. Noone sees soft inquiries except YOU when you pull your own report.

So, we have two issues here.

1. Why do lenders pull credit so many times?
2. What is the impact on my credit score?
#1 is easy. #2 is a little more convoluted….. but there is an answer.

Why DO lenders pull credit so often? The first thing I do when I take an application is pull a credit report. Coupled with the loan application, I can usually determine with great accuracy what type of loan to put this borrower in to. With good to decent credit(along with other factors) my first stop is to my Automated Underwriting engines through Fannie Mae or Freddie Mac. I re-issue the credit report into their system(reissued, not a new credit pull), then let the computer spit out an answer as to whether they will back the loan. If I get what I am looking for, then I shop a few rate sheets and quote the client….. all with one credit pull!! If not, then we may have a situation where we are going to be looking at Alt-A products or subprime. Most of my lenders will use my credit report. Some will not. So, I manually qualify the borrower based on the info in the loan application and credit report. It is common to have the actual lender pull another credit report when the loan is submitted(after the borrower inks a contract). I might have a client who has a really unique credit profile, like job gaps or a short credit history, but with some decent compensating factors like high cash reserves. To get a full pre-approval, the hypothetical loan must be submitted to the lender where they actually pull their own credit report. <= They may even pull it again when the borrower finds a home and is under contract. They may even pull an additional credit report right before closing just to make sure the borrower hasn't gone nuts and bought a new car and a bunch of furniture as that can affect debt ratios.
Whew, thankfully, that lender took the deal..... because if the file is denied, then it must be submitted to another lender who will start all over pulling 'Hard Inquiries' on the credit report.

What is the impact of credit inquiries on FICO scores? In their ‘What to know about rate shopping’, Fair Isaac says the following: Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score. <= Source: MyFICO.com
MyFICO.com is the consumer division of Fair Isaac Co, who developed the FICO score.

Was that a mouthful? Well, I don’t know for sure, but I don’t think many reputable lenders are pulling credit out of the trunks of their cars on an antiquated system. So it is a pretty good bet that you have a solid 30 day (maybe 45) window to shop for a loan or ‘be shopped around’ by a broker.

This can all be very different Banks, Mortgage Bankers & Credit Unions. They typically have in house underwriting and can use the same credit report for a variety of loan types. While I wouldn’t be surprised to see a lender pull multiple reports, it is less likely than with a Broker.

Want to know more about credit scores and repairing/rebuilding credit? http://www.dallasloanguy.com/docs/about_credit.pdf Please read this free e-book About Credit. This book is intended to provide a basic foundation of understanding of your rights and relationships with your creditors. Please do not consider this legal advice.

Tom Burris
DallasLoanGuy.com

Texas Home Loans
Dallas Mortgage

 I still get the occasional call from someone wanting to cash out their mortgage to consolidate bills and they have little or no equity.
Texas is unique in that they do not allow a homeowner to access their home’s equity above 80% of the appraised value. That’s right, Big Brother is watching out for you. If you owe more than $80,000 on a home that appraises for $100,000 you cannot tap into that equity to use as you see fit. This rules applies for Owner Occupied, Homestead properties. Non Owner Occupied(investment) properties are exempt.

While I disagree with the law, I do understand it…. and maybe Texas was wise to put this into place. Bryan Tutas wrote a fantastic article on this subject. Your home is your castle, not an ATM machine! With Real Estate coming back down to reality in recent months, many people are upside down on their homes because they cashed them out at the height of the market. Like drunken sailors, they took all of the cash out and bought fancy cars and big screen TVs with the ‘found money’. Some of them don’t have enough cash to pay the realtor fees when it is time to sell.

But let’s look at this: If I owe $300,000 on a property woth a solid $400,000….. I cannot acces that $100,000 to pay off medical bills or put my kids through college. This is where it hurts people. This is where Big Brother gets in between me and my money. If I want to borrow that $100,000 at mortgage rates, which is pretty cheap money, to invest elsewhere…. the State says I cannot.

Regardless, there are still homeowners out there with plenty of equity should they need some emergency cash. I just hope they spend it wisely.

Tom Burris
DallasLoanGuy.com
Texas Home Loans

Texas Cash Out