Quick answer: The most common mortgage mistakes are changing jobs before closing, taking on new debt, ignoring your credit score, skipping pre-approval, choosing the wrong loan type, waiving the inspection, depositing large unexplained sums and not comparing lenders. Most are avoidable if you keep your finances stable until closing.
Buying a home is one of the most significant financial decisions you’ll make, and securing a mortgage is a crucial part of the process. However, many buyers make common mistakes that can jeopardize their loan approval or lead to financial strain. Here are the key mortgage pitfalls to avoid:
1. Changing Jobs Before Closing
Lenders evaluate your employment history and income stability when approving your mortgage. A job change, especially to a different industry or a position with variable income, can delay or even derail your mortgage approval. If possible, avoid making any career changes until after your home purchase is complete.
2. Taking on New Debt
Lenders assess your debt-to-income (DTI) ratio, and taking on new debt—such as financing a car or opening a new credit card—can negatively impact your mortgage approval. Even after receiving pre-approval, wait until after closing before making any major purchases on credit.
3. Ignoring Your Credit Score
A strong credit score is essential for securing a favorable mortgage rate. Late payments, high credit utilization, or opening new credit accounts before applying for a mortgage can lower your score. Monitor your credit report and take steps to improve your score before applying.
4. Not Getting Pre-Approved
A pre-approval letter shows sellers that you’re a serious buyer and gives you a clear understanding of how much you can afford. Skipping this step may lead to disappointment if you fall in love with a home outside your budget or lose out to a pre-approved buyer.
5. Choosing the Wrong Mortgage Type
There are different mortgage options, including fixed-rate and adjustable-rate mortgages (ARMs), FHA, VA, and conventional loans. Selecting the wrong one for your financial situation could result in higher payments or refinancing needs down the road. Work with a lender to determine the best fit for your budget and long-term goals.
6. Skipping a Home Inspection
Waiving an inspection to make your offer more competitive can be risky. An inspection can uncover costly issues that might not be visible during a standard walk-through. Always invest in a thorough home inspection to avoid expensive surprises later.
7. Making Large Bank Deposits Without Documentation
Lenders scrutinize your financial history, and large, unexplained deposits can raise red flags. If you receive a financial gift or move large sums of money, be prepared to provide documentation explaining the source of the funds.
8. Not Shopping Around for Lenders
Interest rates and loan terms vary between lenders. Failing to compare mortgage offers could mean missing out on better terms. Get quotes from multiple lenders to ensure you secure the best rate and terms for your situation.
The Bottom Line
Keep your job, debt and bank activity stable from application through closing, and tell your loan officer before making any major financial move. A few minutes of planning can prevent a delay or a denial.
Frequently Asked Questions
What should I avoid doing before closing on a mortgage?
Avoid changing jobs, opening new credit, financing large purchases, missing payments and making large undocumented deposits.
Can a job change affect my mortgage approval?
Yes. Lenders verify employment and income stability, so a change, especially to a new industry or variable pay, can delay or derail approval. Talk to your loan officer first.
Why do lenders ask about large deposits?
Lenders must verify the source of your funds. Unexplained large deposits can raise questions, so be ready to document gifts or transfers.
Next step: Avoid surprises before they happen. Talk to a loan officer before you change jobs, make a big purchase or move large sums of money, and we will tell you what to hold off on.
No obligation. It only takes a few minutes.
Sources
- Fannie Mae Selling Guide, B3-6-02 Debt-to-Income Ratios
Tithe Lending LLC | NMLS #2439006 | Equal Housing Lender. General information only; not a loan offer or financial, tax or legal advice.