How to Avoid Common Mortgage Pitfalls for a Smooth Loan Process

Estimated reading time: 4 minutes

When it comes to buying a house, there are a lot of moving parts. Between finding a home and obtaining finances that fit your needs and match your goals, you have a lot to focus on. To ensure you find mortgage success, we’re exploring common financial pitfalls and how to avoid them.

Job or Income Changes

When you apply for a home loan, your lender must confirm you’re making enough money to afford your monthly payments. Changing your job or a change of income may force your loan to be underwritten again or restart the application process.

How to Avoid This Pitfall: Be sure you’re communicating openly and honestly with your mortgage lender. If your income or employment changes, inform your Loan Originator immediately.

Hitting Your Credit Card Limit or Making Late Payments

Your credit score and history are important for your mortgage qualification, pre-approval, and interest rate. Late payments can indicate to your lender that you aren’t reliable at paying your debts. Additionally, hitting your card limits can be an indication that you may not have the funds to handle mortgage payments.

How to Avoid this Pitfall: After you apply for a mortgage, go easy on your finances. It’s best to save any kind of celebratory spending until after your loan has closed.

Buying Big Ticket Items or Applying for New Credit

When you apply for a vehicle or new credit, there is a hard pull on your credit. This lowers your score by a couple of points, indicating to other lenders and financial institutions that you may be applying for financing. Too many credit inquiries or pulls could mean you’re taking out more money than you can afford.

How to Avoid This Pitfall: Instead of risking your mortgage, make a list of the things you want to purchase or apply for once closing is complete.

Changing Bank Accounts

Your lender’s processor and underwriter will be examining your income and bank history. When a lender looks at your bank account, they’re checking for a paper trail of your funds and at least two months of established history. Changing your bank account could be an indication that you’re creating new debt.

How to Avoid This Pitfall: Be sure to provide as much documentation as possible of your assets and bank history for your loan origination team. Before you move money around or open a new account, speak with your Loan Originator.

Making Large Deposits

It’s normal for a borrower to use gift funds or assistance for their down payment or closing costs. While it may seem like depositing this money in your account can help your mortgage approval, there is specific documentation that must be completed.

How to Avoid This Pitfall: All money sources must be verified by underwriting, so speak to your Loan Originator before you make large deposits.

Spending Money Set Aside for Closing

In addition to closing costs, your loan may require mortgage reserves. This is an amount of money that’s usually measured in months, representing your future payment schedule. If your reserves are verified to use in closing and are then spent, you may delay your loan.

How to Avoid This Pitfall: Be sure to plan for all costs when you receive your loan estimate and closing disclosures.

Co-signing Another Loan

If the primary borrower misses a payment for a loan you’ve co-signed, you take on the full legal responsibility and debt of the loan. In addition, any late payments will land on your credit report, which may increase your debt-to-income ratio (DTI).

How to Avoid this Pitfall: Hold off on any financial decisions until after your loan closes. While it’s nice to be able to be a co-signer for a loved one, any small financial discrepancy could cost you mortgage approval.

Omitting Debts or Liabilities

Fannie Mae defines undisclosed debts as any loan or liability that exists during the mortgage process. Additional debt can result in an undesirable mortgage rate, or your loan may be denied.

How to Avoid This Pitfall: Honesty is the best policy, including during your mortgage application. Submitting all of your information reduces the risk for surprises, like an inaccurate pre-approval or other surprises that may delay you receiving your keys.

Getting Yourself Mortgage Ready

Having a knowledgeable and experienced Loan Originator on your homebuying team sets you up for mortgage success! Our personalized experience makes our borrowers feel confident and supported every step of the way. Ready to learn more? Contact us today!