Top Mistakes to Avoid After Applying for a Mortgage

Once you’ve applied for a mortgage, it can feel like the hard part is over, but in reality, there are still many ways your mortgage approval can be jeopardized before closing day. From making large purchases to changing jobs, certain actions can cause delays, or even derail your mortgage approval altogether. To help you avoid these pitfalls, we’ve compiled a list of the most common mistakes to avoid after applying for a mortgage.

1. Making Big-Ticket Purchases

After getting your mortgage pre-approval, it may be tempting to celebrate by buying new furniture or a car. However, making large purchases can negatively affect your debt-service-ratio (TDS) and credit score, both of which are crucial factors in your mortgage approval process.

Example: If you take out a loan to buy a new car before closing on your house, the additional debt will increase your monthly obligations, which could lead to your mortgage being denied if the lender finds out. Lenders often reassess your financial situation before final approval, so it’s important to keep your debt service ratio as low as possible.

Tip: Wait until after your mortgage has closed and you’ve taken possession of your home before making any major purchases.

2. Changing Careers or Quitting Your Job

Your employment status and income stability are key factors in securing a mortgage. Changing jobs or quitting altogether can create uncertainty about your ability to make mortgage payments, which could cause lenders to reconsider your approval.

Example: If you switch from a salaried position to a commission-based job, your income will fluctuate, and lenders will now ask for at least a 6 month history, and often 2-year history to prove the income amount. Even if the new job offers better long-term potential, lenders typically prefer stability.

Tip: Avoid changing jobs until after you’ve closed on your home. If a job change is unavoidable, consult with your mortgage broker to ensure it won’t disrupt your approval process.

3. Applying for New Credit

Applying for new credit, whether it’s a credit card or a personal loan, can negatively impact your credit score and raise red flags for lenders. Every credit application results in a hard inquiry on your credit report, which can lower your score, especially if multiple applications are made in a short period of time.

Example: If you open a new credit card to finance new appliances for your home, the inquiry and new account could reduce your credit score, potentially pushing you below the threshold needed for your mortgage approval.

Tip: Hold off on applying for new lines of credit until after your mortgage closes without first talking with your mortgage broker.  Lenders want to see a consistent financial profile, so any changes can complicate the approval process.

4. Co-Signing on Another Loan

When you co-sign a loan, you take on the financial responsibility for that loan if the primary borrower can’t make the payments. Lenders treat this as additional debt, which can affect your debt service ratio and make you a higher-risk borrower.

Example: If you co-sign a car loan for a family member, lenders will factor that loan into your overall debt load, even if you’re not the one making payments. This can lead to a reduced mortgage amount or, in some cases, denial of your mortgage.

Tip: Avoid co-signing for loans until after your mortgage has closed, as it can impact your ability to qualify for the full amount of your mortgage.

5. Missing Payments on Existing Debt

Your payment history is a critical component of your credit score, and missing payments on any current debts can have a significant negative impact. A missed payment on a credit card, car loan, or any other financial obligation can lower your credit score and signal to lenders that you’re a risky borrower.

Example: If you forget to make a credit card payment while going through the mortgage approval process, your credit score may drop, potentially affecting your interest rate or mortgage approval.

Tip: Set up automatic payments to ensure you never miss a payment during the mortgage process. Consistent, on-time payments help protect your credit score and maintain your mortgage approval status.

6. Draining Your Savings

Many homebuyers don’t realize that lenders need to see your bank accounts before closing to ensure you have enough funds for your down payment, closing costs, and often some additional emergency reserves. For long closes, like with new construction, they may ask for updated proof the funds are still there.

Example: If you dip into your savings to pay for a vacation or other large expense, it could leave you with insufficient funds for closing costs or your down payment. This can delay the closing process or even cause your mortgage approval to fall through.

Tip: Keep your savings intact until after you’ve closed on your home. If you anticipate any large expenses, wait until your mortgage is finalized to avoid complications.

Conclusion

The period between applying for a mortgage and closing on your new home is crucial. Making major financial changes, such as large purchases, job changes, or taking on new debt, can jeopardize your mortgage approval. To ensure a smooth home-buying process, maintain financial stability, avoid new credit, and protect your credit score until the keys are in your hand.

If you have questions about how to navigate the mortgage approval process, we’re here to help! Contact us at Mortgages for Less, and we’ll guide you through the process to avoid any missteps that could affect your mortgage.