Does Credit Score Affect Mortgage Preapproval?

The time has come. You’ve worked hard on budgeting your money, saving for the future, and you’re finally ready to start shopping for a home. One of the first steps you’ll want to take in the mortgage process (view the step-by-step mortgage process) is securing loan preapproval from OVM Financial. However, you may find yourself asking “Does credit score affect mortgage preapproval?” Yes, it can. Read on to find out how.

Understand why your credit score matters

Your credit score is one of the most important tools we use to assess your creditworthiness. The number that makes up your credit score takes into account your payment history, how much you currently owe, the types of accounts you have, the length of your credit history, and any recent credit activity. In fact, since your credit score helps us determine if you’re eligible for a mortgage loan, it’s one of the first things we’ll look at when you ask about loan preapproval.

Credit score requirements by loan type

Your credit score will also have an impact on the type of loan program that will work best for your purchase. Each loan program has a different approach to minimum credit score requirements.

Keep in mind, that minimum credit score requirements are the baseline for mortgage preapproval. Take a look at the requirements for each program below to see how your credit score aligns with the guidelines for each mortgage option:

Minimum Credit Score Requirements by Loan Program

• FHA loan – 580 according to guidelines set by the Federal Housing Administration
• VA loan – No minimum credit score, up to the lender’s discretion – 580 is a good benchmark to determine if your credit score is ready for VA loan approval.
• USDA loan – No minimum credit score, up to the lender’s discretion
• Conventional loan – 620 according to guidelines set by Fannie Mae and Freddie Mac

While you can obtain mortgage preapproval with a low credit score, such as one below 630, you may have to make a significant down payment or pay a slightly higher interest rate.

The higher your credit score, the more likely a loan officer is to preapprove your mortgage and offer you a more favorable interest rate. Aim to improve your credit score prior to preapproval for the best possible outcome!

Will mortgage preapproval hurt my credit score?

Now that you know how a credit score may impact the outcome of your preapproval, you might be wondering, “Does mortgage preapproval affect your credit score?”

When you apply for mortgage preapproval, your loan officer will run a hard credit inquiry, which will affect your credit score and could lower it up to five points. So before you apply for mortgage loan preapproval, make sure you’re serious about buying a new home.

Is preapproval the same as being approved?

Keep in mind that mortgage preapproval is not the same as being approved for a loan. Preapproval establishes how much OVM Financial is willing to lend you to purchase a home.

After you find a home and officially apply for a mortgage, a loan underwriter will examine your financial history, including your credit score, in greater depth to discover if you have a history of late payments, defaults, or bankruptcies. Only after your application has gone through underwriting and been approved can you close on your new home.

Now that you know how your credit score affects mortgage preapproval, you’re ready to talk to an OVM Financial expert who can help you plan the purchase of your new home. You can also read more about topics, such as what does conditionally approved loan mean, on our blog.