Q&A: Mortgage shopping, forbearance, hard & soft inquiries

From a Speaking of Credit reader….

By Barry Paperno

Dear Speaking of Credit,
What is the best way to shop for a mortgage without getting too many hard inquiries?
Before you start, get your reports and FICO mortgage scores (Experian 2, Equifax 5 and TransUnion 4) from myFICO.com — the exact same scores most mortgage lenders use that are only available there. They will cost you about $60, but the inquiries won’t affect your score and you’ll know where you stand with lenders.

Then confine your mortgage shopping to about two weeks if at all possible, as any number of hard inquiries incurred during that time will only count as one inquiry in the score. Some score models give you 45 days, but two weeks will keep you safe. If you happen to generate one or two more later, though, don’t fret, as the typical inquiry only affects your score by about 5 points.

Will having student loans in forbearance while getting a mortgage help or hurt my score?
Loans in forbearance will neither help nor hurt your score. Though it can be argued that by simply not hurting your score you’re helping it.

Keep in mind, however, that any late payments prior to forbearance can continue to do damage to your score. Also, the mortgage lender may disapprove (apart from the score) of the forbearance or require an explanation of the circumstances leading to it.

How can you identify companies that use soft inquiries as opposed to hard inquiries?
Soft inquiries will usually be listed on a credit report as those pulled for promotional, account review, consumer disclosure, insurance and other purposes. These usually appear separately from the hard inquiries that result from applications for new credit.

Hope this helps!

2 thoughts on “Q&A: Mortgage shopping, forbearance, hard & soft inquiries

  1. Jim Mitchell

    Barry, I have recently paid off my mortgage by selling my house. No late or missed payments. I have no consumer debt (revolving credit), car loans etc., but my FICO score dropped by 30 points (according to the score posted on my credit card). The evaluation says “not enough types of credit being used”.
    It seems as though FICO is a rigged game to allow lenders to unnecessarily charge a higher interest rate even though you have practiced very good creditworthy habits .
    Any explanation would be helpful.
    Thank you

    Reply
    1. Barry Paperno Post author

      Hi Jim,

      I’m afraid you’ve experienced one of those hard to explain, and certainly hard to justify, scoring quirks that simply defy common sense. And while I can see how it can easily seem like a rigged game whereby lenders are able to charge higher interest when scores drop like this, I seriously doubt they could design something so complicated just for that purpose – even if they wanted to. But I guess stranger things have happened!

      Of course, what looks to be happening here, at least partly, is that with a paid off mortgage and no car loan, you no longer have any open “installment” credit (loans) on your credit report. The other major type is “revolving” (cards).

      The points at stake here are found in the Types of Credit scoring category (10% of the score) that says consumers who use both revolving and installment credit tend to be more creditworthy than those who don’t. For instance, a consumer who has a mortgage and car loan, but no credit card, might find managing a credit card more difficult when presented with the opportunity. Not sure I buy into this, but who asked me?

      From my experience 30 points seems a bit steep for this reason alone. I’m thinking maybe 10-20 points max. It’s probably not impossible, but often there are multiple factors at work when a score takes such a big hit.

      Have there been any other recent changes to your credit report? Opened or closed any credit cards? Raised or moved any card balances around? Do you have any open credit cards?

      Also, one way to see if any other factors are having a major impact on your score is to review the other reason codes that accompany your score, such as the “not enough types of credit being used” comment you received. Are there any others you’re now seeing as well?

      Thanks for writing!

      -Barry

      Reply

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