Looking for a business loan and a mortgage at the same time is a lot like doubling down at the poker table. Lots of action and twice the risk can bring excitement and forward movement.
Taking out two loans isn’t exactly the same kind of gamble, but there are still plenty of factors to consider. Shopping for both a mortgage and a business loan at the same time can make your credit picture a little more complex than if you decided to pace yourself or had the freedom to search out both loans separately.
But that doesn’t mean you shouldn’t do it. Growing or starting a business and moving into a new home at the same time isn’t unheard of; it’s just a lot of action that needs to be managed with care. Follow these quick tips if you have no choice but to go “all in” on both a mortgage loan and a business loan at once.
First, know this: traditional lenders like banks or other mortgage lenders perform what is called a “hard pull” on your three-digit FICO ® Score whenever you apply for a mortgage, business loan, auto loan or other loan. Hard pulls can ding your credit score by a few points, but numerous hard pulls could possibly impact your credit score more substantially.
If you’re shopping for both a mortgage loan and a business loan at the same time, you might see your credit score drop slightly because of hard pulls. The good news? It won’t drop by much. That’s because hard pulls for the same type of loan or credit during a short period are counted as just one.
For example: Say you’re shopping for a mortgage loan and you apply with six different lenders during a 1-week period. All six of the hard pulls from these lenders will be treated as just one total credit pull, meaning your credit score won’t dip too much.
As you check into your options, be aware that the number of applications you submit may increase the impact on your credit score. But don’t let the fear of a credit-score drop prevent you from shopping around for both business and mortgage loans. Comparing fees and interest rates from several lenders is the best way to get the most affordable loan.
When you apply for a mortgage, your lender will look carefully at your debts, income, employment status and credit. Most mortgage lenders have strict credit criteria when they consider making a long-term investment in a borrower. After integrating lessons learned from the 2008 financial crisis, lenders have made today’s screening practices more stringent than ever.
Lenders will look closely at your FICO ® credit score. This score measures how well you’ve paid your bills and managed your debt. If you make a credit card payment 30 days or more past its due date, for instance, this late payment will be reported to the three credit bureaus of Experian ™ , Equifax ® and TransUnion ® . A single missed payment could cause your credit score to drop by 100 points or more.
The key to qualifying for a mortgage at a low interest rate, then, is to pay all your bills on time each month. It helps, too, to pay down as much of your credit card debt as possible. Having a lot of this debt can also cause your credit score to drop.
Follow best practices by getting preapproved for a home loan before you start shopping. This will enable you to understand how much house you can afford. During the preapproval process, you’ll provide lenders with proof of your income in the form of copies of your most recent paycheck stubs, W2 forms, bank account statements and tax returns. Your lender will study this information, and pull your credit, to determine how much mortgage money it is comfortable lending to you.
Getting preapproved makes you a more attractive borrower. Home sellers like working with buyers who have proven they can already qualify for a mortgage. Getting preapproved can also save you time when searching for a home: You won’t waste time looking at $300,000 homes if you’ve only been preapproved for a mortgage of $200,000.