Soft vs hard credit pull

Back in the heyday of the mortgage market when shady brokers were selling their socks off (which really wasn’t long ago now), they used the terms “soft” and “hard” credit inquiries when talking about pulling borrower’s credit scores. In fact, confusion about the difference between these types of inquiries was an easy thing for shady brokers to take advantage of. So, let’s dive into the different types of credit inquiries and how they affect your credit score.

Soft Vs Hard Inquiries

The terms “soft” and “hard” when referring to credit inquiry types aren’t exactly technical terms; instead, they’re industry jargon used to refer to two groupings of credit inquiries. Credit inquiries that do not show an intent to borrow money are not supposed to hurt your credit score. Account status checks by your current lenders and banks, pre-qualification credit checks for the purpose of sending credit card offers, and personal inquiries made by you through one of the many credit reporting agencies or credit monitoring services are all included in this category; industry jargon deems these credit inquiries “Soft” credit pulls.

“Hard” credit inquiries are those inquiries that do represent an intent to borrow money and will damage your credit score, if only slightly. We’ve covered the reasoning behind this in other articles about why credit inquiries affect your credit score in the past, but to put things into as simple terms possible, the day you decide to borrow more money, all else being equal, you become a greater credit risk. The reason for this is simple, the more money a person borrows, the more difficult it becomes to repay that money. So, by lowering your credit score just a bit each time you show intent to borrow money, the credit agencies are sort of, preemptively adjusting your credit score.

Can You Qualify for a Mortgage Using a Soft Inquiry?

Yes and No. Let’s rephrase that question. Can you get a true mortgage offer, Good Faith Estimate and all, using a soft credit inquiry? No. That said, I have given rough quotes based on soft inquiries before, and that’s perfectly ok, the problem with that in this day and age is, until you have an estimated settlement statement in front of you, you really don’t know what you’re getting or if the mortgage professional on the other end of the phone is being honest at all.

What About The Broker That Said He Uses “Soft Pulls” to Pre-Qualify Me?

Baloney. Mortgage companies don’t use soft pulls to protect your credit. If you give a company your social security number to prequalify you for a mortgage, they are going to run your credit and it’s going to be a hard pull. I’ve personally heard this line used before in an attempt to convince a borrower to fork over his or her social security number, but it’s absolute nonsense.

So How Can You Get a Quote With a Soft Pulled Credit Report?

You can get a preliminary quote with a credit report you pulled yourself. While a lot of the mortgage salesmen/women are taught to not give quotes before they have a real credit report, that’s really just a sales tactic; if you find an honest mortgage professional, he or she will give you a rough quote based on a credit report you pulled yourself.

How To Pull Your Own Credit Report

There are a few different resources where you can do this. All consumers are entitled to one free credit report per year, if you haven’t gotten a credit report in the past year, you can get one free at AnnualCreditReport.Com. If you’ve already pulled your one free credit report and would like to check it again, you can go to FreeCreditReport.Com. Now, here’s a little tip to help you out on this one. FreeCreditReport.Com gives you a free credit report as well as a 7-day free trial for their Triple Advantage Credit protection program. Now, this is a great program if you need credit monitoring, but if not, you can cancel within the 7 days and you keep your credit report for free. The only other option to getting a copy of your credit report is to buy one for $13-30 online, but why do that when you can get it free? A lot of companies try to make it nearly impossible to cancel the free trial so that you end up paying anyway, but FreeCreditReport.Com is run by Experian, one of the 3 major credit reporting agencies and is very legit. I’ve personally pulled my credit report there and canceled within the 7 days and it was no hassle at all. No cost to me whatsoever and I got a copy of my credit report.

Once you get your credit report, seek out an honest mortgage professional, and he or she should be more than happy to give you an idea what terms you could qualify for based on your free credit report.…

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Paying off your mortgage

Most Americans have a strong desire to pay off their homes. In a country wallowing in debt up to its eyeballs, getting the biggest debt you’ll likely ever take on paid off can be a pretty exciting idea. Believe it or not, people haven’t always been so eager to pay off their mortgages; it’s certainly not a new trend, but it helps to understand the reason the idea of owning your home free and clear is so popular these days.

Now, you’re probably thinking, “why understand the reasoning behind paying off your mortgage, its simple, to reduce your debt, pay less interest, and be safe from the potential of losing your home if you lose your job.” Well, it seems simple, but in many cases, the numbers work out in favor of not paying off your mortgage. How can we explain, then, the overwhelming support in favor of paying off a mortgage that may actually be helping most homeowners in the first place? To do that, we need to understand the reasons behind the wave of excitement over becoming mortgage free as well as the numbers that show whether or not becoming mortgage free is something that will benefit you.

Why Pay Off Your Mortgage?

For most Americans, there are three main reasons for paying off their mortgages:

  1. A mortgage is a debt, and debts are risky by nature.
  2. A mortgage is an expense, and paying off your mortgage cuts out a large monthly expense.
  3. Because of the length of time it takes to pay off a mortgage, most homeowners will pay an enormous amount of interest over the life of their loans.

Let’s examine these one at a time…

A MORTGAGE IS A DEBT, AND DEBTS ARE RISKY BY NATURE

The Two Major Risks Associated with Mortgages:

  1. If some major negative financial event occurs in your life, such as a job loss or major illness, you run the risk of being unable to make your mortgage payments and the bank could foreclose on the property.
  2. For borrowers with interest rates that may adjust during the life of the loan, when caught in a real estate market downturn, you run the risk of not being able to refinance if your home’s value, and hence available equity, drops significantly. If your interest rate adjusts to a point that you cannot afford to make payments without refinancing, you may have to sell or the bank will foreclose on the property.

A Mortgage is Expensive, So Paying Off Your Mortgage Cuts Out a Large Monthly Expense

This is pretty simple, the more money you have, the more freedom you have to do what you want. For most Americans, paying off their mortgages will relieve them of their largest monthly expense, giving them more freedom to do what they want.

Also, income generally drops at retirement when workers begin living off pensions, social security, savings, etc. Having the mortgage expense eliminated by that time frees up a large expense.

Mortgage Interest Is Expensive

Since the term of a mortgage is generally around 30 years or more, you can expect to pay an enormous amount of interest over that time. In fact, on a $200,000 mortgage, at 6%, over 30 years you’ll pay over $231,000 in interest…more than the property even cost to begin with!1

Getting that mortgage paid off quickly certainly helps save interest. Even as little as $100 extra per month in the above example would save almost $50,0001.

Why Not Pay Off Your Mortgage?

Now let’s reexamine the reasons why homeowners want to pay off their mortgages and see why you may not want to pay it off.

DEBT ALLOWS YOU TO LEVERAGE OTHER PEOPLE’S MONEY

Debt always carries some risk with it, but debt is the only way to leverage the often-talked-about principal of “Other People’s Money.” If you have $100,000 in cash to invest, at 6% per year you’ll reap $6,000 in gains. Now, if you have $100,000 cash to invest and you add to that $100,000 of someone else’s money in the form of debt, you can reap $12,000 in gains the first year with the same $100,000 of your own money. By taking on debt, in this case, you double your cash on cash return from 6% to 12%. As long as you’re paying less interest on the money borrowed than you’re making from the investment, you come out ahead.

BANK MAKE MONEY WITH ARBITRAGE, AND SO CAN YOU

Arbitrage, with regard to mortgages and investments, is a concept that refers to borrowing money at a lower rate than you can make from it through investment. For example, if I can borrow money at 6% and invest it at 8%, I have a 2% positive gain on that money. If my $200,000 mortgage at 6% costs $1,199 per month, and, instead of making an extra $100 payment each month on the mortgage, I invest that $100 at 8%, I can gain $8 per month, as opposed to the $6 per month I would save by applying that money to my mortgage at 6%.

MORTGAGE INTEREST IS EXPENSIVE, BUT YOU HAVE TO CONSIDER THE BOTTOM LINE

Sure, making an extra principal payment of $100 per month in the above example would save $50,000 in interest charges over the life of the loan, but by investing that extra $100 per month at 8% for those same 30 years, I can make almost $150,000. That would give me enough to pay the extra $50,000 in interest on the mortgage and still have almost $100,000 left over.2

Mortgage Ideas to Consider Beforehand

OPPORTUNITY COST

Whether or not you should pay off your mortgage depends on a number of factors, and you really have to do the math to find out if it’s in your best interest. When considering the options, always keep in mind a key term…Opportunity Cost.

Opportunity Cost is defined by Investopedia.com as:

“The cost of an alternative that must be forgone in order to pursue

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