Pre-approval and Credit

[Conor Lehane]

I'm currently educating myself on the aspects of RE I want to pursue but I just want to throw this question out to Moore seasoned investors.
Does pursuing pre approval for mortgages put a hit on your credit?

I have good credit simply because I have only lived in the US for five years . My wife is adamant about never falling behind on payments. That brings up another question. Does the fact that I am only building credit a short time affect getting pre approved.

And last but not least my wife thinks that if I do have a mortgage on an investment property it will affect our chances of getting a mortgage in a few years when we upgrade our own place. This seems excessive but thoughts are welcome

Thanks in advance.

[Kelly N.]

Hi Conor,

When you get preapproval, they generally check your credit, so the inquiry will show up when the next credit check happens (usually during underwriting). We had to fill out a form with the lender stating why our credit was checked and whether a new loan was taken out as a result. There was a similar form for past addresses and other names (my maiden name, my husband's name without middle initial)

Investment loans WILL affect your ability to get another mortgage. Conventional lenders look at your debt to income ratio (DTI) which is the total debt payments you have in a year (includes principal, interest, insurance and tax for each property, plus car loans etc) and they divide that by your adjusted gross income (AGI). Most conventional lenders want this ratio to be 43% or less. For the first two years, your income properties will count in the debt department, the PITI payments for the year are considered debt. After each rental property has been on 2 years of tax returns, they will count the income from that property on the income side of the equation using their formula- .75(gross rents)-PITI=income.

So, for the first two years, each property increases your DTI, then after two years it should be decreasing the DTI since it adds to your income :)

Kelly