10 COSTLY MISTAKES TO AVOID WHEN APPLYING FOR A MORTGAGE

Applying for a mortgage is a significant financial step, and even small mistakes can impact your approval chances or the terms of your loan. Whether you’re a first-time homebuyer or refinancing, avoiding these common pitfalls will help ensure a smooth mortgage process.

1. Making Major Purchases on Credit

Lenders assess your debt-to-income (DTI) ratio to determine whether you can handle additional debt. Making large purchases on credit—such as a car, furniture, or expensive appliances—can increase your debt load and negatively affect your mortgage approval.

2. Opening or Closing Credit Accounts

Your credit score plays a crucial role in your mortgage application. Opening new credit accounts can trigger hard inquiries, which may lower your score. Closing existing accounts, even if you don’t use them, can shorten your credit history and increase your credit utilization ratio, both of which can negatively impact your mortgage application.

3. Changing Jobs or Income Sources

A stable employment history reassures lenders that you have a reliable income to make mortgage payments. Switching jobs, especially to a different industry or moving from a salaried position to self-employment, can create uncertainty about your financial stability. If possible, avoid major career changes until after your mortgage closes.

4. Depositing Large Sums of Money Without Documentation

Lenders carefully review your bank statements to verify your income and ensure you can afford your down payment and closing costs. Unexplained large deposits may raise red flags, as lenders need to confirm that your funds are legitimate. If you receive a financial gift or other large deposit, be prepared to provide documentation of its source.

5. Missing Payments on Existing Debts

Your payment history is a key factor in determining your creditworthiness. Missing payments on credit cards, loans, or other bills can lower your credit score and signal financial instability to lenders. Even a single late payment can impact your mortgage application, so ensure all payments are made on time.

6. Maxing Out Credit Cards or Taking on New Debt

A high credit utilization ratio—using too much of your available credit—can lower your credit score and make you appear financially overextended. Avoid maxing out your credit cards or taking on new loans while applying for a mortgage, as it could reduce your borrowing power or lead to a higher interest rate.

7. House Hunting Without a Mortgage Pre-Approval

Looking at homes without knowing how much you can afford can be a waste of time and set you up for disappointment. Getting pre-approved for a mortgage not only helps you understand your budget but also makes you a more competitive buyer. Sellers are more likely to accept offers from pre-approved buyers, especially in competitive markets.

8. Overlooking Closing Costs and Ongoing Expenses

Many buyers focus on the down payment but forget about additional costs like closing fees, property taxes, homeowners’ insurance, and maintenance expenses.

9. Assuming All Lenders Offer the Same Terms

Not all mortgage lenders offer the same rates, fees, and loan terms. Shopping around and comparing multiple mortgage offers can save you thousands of dollars over the life of your loan. Consider working with a mortgage broker or using online comparison tools to find the best deal.

10. Providing Inaccurate or Incomplete Information

Honesty is essential when applying for a mortgage. Lenders thoroughly verify financial details, and providing false or incomplete information can lead to delays, denials, or even legal consequences.