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.

Trigger Leads:

As you probably already know, when you apply for a mortgage, your credit is pulled; in and of itself, no big deal, and it’s necessary for a prequalification. What you probably don’t know is that the three credit bureaus, Experian, Transunion, and Equifax, automatically generate what’s called a Mortgage Trigger Lead, the lead is your information, and the credit bureaus sell this information to participating lenders/brokers. Here’s how it works…

A lender/broker signs up with the credit bureaus to receive Trigger Leads when someone’s credit is pulled for the purpose of qualifying for a mortgage. The lender/broker specifies certain requirements to the credit bureaus regarding credit score, loan amount, property value, and a multitude of other factors, which basically amounts to that specific lender/broker’s profile for the mortgage shoppers it wishes to target. When your credit is pulled for the purpose of qualifying for a mortgage, the credit bureaus compare your information with the profile designated by the lender/broker that requested the trigger leads; if your information matches the that profile, the lender/broker receives your information from the credit bureaus and, in turn, pays the credit bureaus for that information. Now, that lender/broker knows your information and that you’re in the market for a mortgage, so you get a phone call. This happens on an enormous scale every day, and your information may be sold to several different lenders/brokers, hence the phone calls. I’ve actually had a client solicited in this way by a broker who pretended to be with my company; I spoke to my client the next day and she told me that she supplied “Jim” with all the information I needed to submit her loan to the bank. Needless to say, she wasn’t exactly happy when she found out “Jim” didn’t work for my company.

Thankfully, the Fair Credit Reporting Act (FCRA) offers you the opportunity to opt-out of this system altogether via mail, telephone, or internet. Just call 1-888-5-OPTOUT (1-888-567-8688) or visit www.optoutprescreen.com. If you opt-out electronically, the opt-out period is currently limited to 5 years. You can opt out by mail, permanently, by visiting the above website and following the permanent opt-out instructions.

Mortgage Title Leads:

Mortgage companies can order a list of leads of current mortgage holders in the form of Title Leads from most Title Companies. Lenders/Brokers use these leads for telemarketing and, if you get on one of these lists, you may receive dozens of phone calls every day from telemarketers soliciting your mortgage business. These leads are usually free for mortgage companies and the only way to opt-out of these is to put yourself in the National Do Not Call Registry. You can register your home or mobile phone number and the request is valid for 5 years; keep in mind, it can take up to 31 days to become effective. I’d like to say that all companies comply with the National Do Not Call Registry, but I know from experience that they don’t; so it may not eliminate all telemarketing calls, but it will eliminate most of them. If you do receive telemarketing calls more than 31 days after you’ve registered in the Do Not Call Registry, you have the ability to sue the company soliciting you.

Why Are There So Many Mortgage “Salesmen?”

First of all, the vast majority of mortgage companies pay commission-only. Loan Officers at these companies generally have no idea how long it actually takes before they’ll receive their first paycheck, and it’s usually quite a bit longer than they had anticipated. By the time they finally do get paid, many of them are near the brink of financial disaster. They end up feeling a lot of pressure, not only because of this, but also from their superiors, to close as many loans as possible as quickly as possible. Unfortunately, and I’m still not sure why this is, the quickest way to close deals is to be pushy, but at the same time, slightly aloof, and purposefully withhold information. When you’re new to the business, you just don’t have the knowledge it takes to wow a prospective client with a thorough presentation. Also, and this is something I still don’t like to think, but it’s true; the truth alone is not enough. Let me tell a brief story to illustrate why…

A Frustrating Personal Story

When I first got into this business I started working with a client who wanted to refinance and take some cash out. The guy already had a mortgage payment that he couldn’t afford, so I asked why he wanted the cash; guess what his answer was? To buy his wife a new car. This guy was working a side job, getting paid under the table to live in a house he could barely afford, and he wanted to increase the payment on that house to buy his wife a new car. Being the respectful young man I was, I told him that I was a little worried that he was already overextended and cashing equity out of his house would be one step closer to major financial problems. I could tell my concerns were falling on deaf ears, so I finally decided to help him do what he wanted. After putting together a Good Faith Estimate I sent it to him.

Now I already knew this guy was rate shopping to save his life, and as I cover in my posts about rate shopping, it’s nearly impossible to accomplish effectively. So, after spending about 4 hours of my time working to get this guy into the best loan possible, he hits me with one more curve-ball; another broker is offering him the same loan program with a 1/2% lower interest rate and the same costs. I tried to explain to this particular client, to no avail, the difficulties of rate shopping. And, though I was fairly new to the business, I knew damn well 1/2% lower interest rate was impossible in that market. Days turned into weeks and this guy still hadn’t made a decision yet. I remember our last conversation, during which I explained to him that the rate he was being quoted was impossible, that rate-shopping in general was impossible, especially when you drag it out over several weeks. I really thought I had gotten through to the guy, and I was pretty proud of myself for remaining honest telling it like it was. The next day I had a voicemail; he decided to move forward with the other company.

The Experience of A Newcomer To The Mortgage Industry

For a new guy (or girl), this can be incredibly frustrating. Here you are being totally honest and upfront and you’re losing business to someone who flat-out lies to the client. This happens so much in the beginning you start to think every homeowner is out of his or her mind completely, and your view of the world and other people really does start to change. You begin to question whether everything your mom and dad told you about honesty being the best policy is really true. You figure, “This must be the way to succeed in business. I may not like it, but I’ll get used to it.” I can tell you without a doubt that this is one of the single most important factors causing a lot of Loan Officers and Mortgage Brokers to become shady characters.

Experiences just like that one had a major influence on my decision to start Truthful Lending dot Com, and experiences like that one are the major reason Mortgage Professionals are taught to sell mortgages and not become advisers.

Mortgages Have Become A Commodity – How That’s Happened

In the early years of business, before the information age, consumers chose to patronize companies that were honest and delivered as promised; when a consumer chose a company to work with, that consumer was loyal to that company, sometimes for life. This was the only way to shop; there was no World Wide Web that could connect you with the lowest priced products around the world.

The information age has irreversibly altered the lives of people on this planet. If you want tea from China, you can jump online and have it at your doorstep the next day. With a wide variety of options comes competition, and competition eventually leads to improved products and services. This has changed our world for the good in my opinion and has no doubt led to an incredible increase in the average American’s quality of life. If a company is taking advantage of it’s customers, one can file a complaint with the Better Business Bureau and any person around the world can use that information to make a more informed buying decision the same day. Abundant access to information has led to a shopping frenzy, and companies are popping up left and right to fill that demand.

Fast forward to the late Nineties when companies like Lending Tree came into existence. They took a central tenet of our economic system and applied it to the mortgage industry. “Have banks compete over you,” “Banks compete, you win.” Most of us have heard the slogans. Not only did companies like Lending Tree bring more competition, they also promoted another benefit; saving time. You can submit your information to Lending Tree today and have 5 different mortgage companies contact you within minutes. But companies like Lending Tree had to find something concrete to market besides the abstract concept of competition if they were going to flourish. They chose the easiest benefit to sell in this age of quick and easy comparison shopping, price. Competition leads to lower interest rates, such companies suggested.

With increased competition also comes increased specialization; it’s better to dominate a small, target market than to spread company resources too thin and be branded with mediocrity. Specialization…it’s worked for companies like AT&T who used to offer every product and service under the sun. Why can’t the same concept be applied to the mortgage industry? Financial companies took the queue and began to specialize; the all-encompassing financial firm of the past gave way to separate stock brokerages, financial planning firms, retirement firms, mortgage brokerages and more.

What’s Wrong With This Level of Specialization In The Mortgage Industry?

There is a point, past which any more specialization has a negative affect; it can become a hindrance to both consumer and business welfare. Imagine, a baseball game without beer and hot dogs. Imagine watching your favorite team without Peanut vendors yelling in their classic baseball stadium drawl; the experience wouldn’t be the same. Baseball clubs understand this and offer more than just the game itself. You won’t find a stadium in America that doesn’t offer beer, hot dogs, peanuts, and popcorn.

The mortgage industry has become too specialized; whether it be a result of consumer demand or the fault of the industry itself, consumers are offered low rates, low fees, and low payments; unfortunately, this puts mortgage shopping in the same category as shopping for new gym socks – they’re all the same, why not find the place with the best price, right? Wrong. Your mortgage is one of the most powerful financial tools at your disposal, you absolutely must recognize this. Lenders are shutting down left and right, the industry is feeling the pain that is a result of inadequate understanding of mortgages on the parts of borrowers and industry professionals alike. Mortgage companies are using price as a marketing foundation when price is largely irrelevant and mostly impossible for the average home owner to compare (remind me to write an article about the problems with mortgage rate shopping). But that’s what mortgage companies have decided to focus on, and that’s what home owners have come to expect; compete on price and nothing else, ignore the forest for the trees. The shift of focus away from offering a mortgage as a tool for the ultimate financial benefit of the homeowner has caused the current state of the mortgage industry.

The Mortgage Industry Needs Advisers, Not Salespeople

The sheer number of mortgage programs available warrants the advice of an expert. Add to that the fact that hordes of Americans are so inadequately prepared for retirement it’s scary, the last thing home owners need is a commoditized mortgage program offered up by a short-sighted salesman. The industry has become complicated; there are literally hundreds, if not thousands, of different mortgage programs to chose from, each one better suited to a particular borrower. For most people, their mortgage will be their largest investment, shouldn’t they be assured that their money is used effectively? Mortgage professionals, first and foremost, should be service-focused professionals, not salesmen. And while price shouldn’t be completely ignored, the focus should be on proper advice and expertise, not on searching far and wide to save .25% on the rate.

How To Shop For A Mortgage

Simple. Find a broker you can trust; a broker who can become your life-long adviser. One who can understand all of the factors affecting your finances and can offer solid advice concerning the myriad of available mortgage programs. He should know how to best help you meet your financial goals; that should be his number one concern.