Definition:
In real estate and lending, an inquiry refers to a request made by a lender or other authorized party to check a person’s credit report. It typically happens when someone applies for a mortgage, loan, or new credit account.
Example:
When Jason applies for a mortgage, the lender pulls his credit report to review his credit history and score. This action creates a hard inquiry on his credit report, which may slightly lower his credit score for a short period.
Explanation:
There are two types of credit inquiries:
- Hard Inquiry: Occurs when a lender checks your credit as part of a loan or mortgage application. It can slightly affect your credit score and stay on your report for up to two years.
- Soft Inquiry: This happens when you check your own credit or when a lender pre-approves you for an offer. It does not impact your credit score.
In a real estate transaction, hard inquiries are typically made when a buyer applies for mortgage pre-approval or final loan approval. Lenders use this information to assess a borrower’s creditworthiness and determine loan terms, including interest rate and loan amount.
Multiple inquiries from mortgage lenders within a short time (usually 14–45 days) are usually treated as one inquiry to allow borrowers to shop for the best rate without hurting their credit.
Why is Inquiry Important in Real Estate Transactions?
Inquiries matter because they signal to lenders that a buyer is seeking credit and may affect their ability to qualify for a loan. For buyers, limiting unnecessary hard inquiries helps protect their credit score. For sellers, a buyer with fewer recent inquiries may appear more financially stable. Understanding inquiries helps all parties ensure a smoother and more transparent financing process.