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3 Things to Avoid When Applying for a Mortgage

3 Things to Avoid When Applying for a Mortgage

First-time homebuyers are sometimes surprised that it can be much more challenging to qualify for a mortgage than other loan types. Home loans are usually relatively large and have longer loan terms, so they are more of a risk for the lender. Financial institutions will do some digging into your finances to play it safe and ensure you're capable of paying the loan back.

Things they will do to assess your risk as a borrower:

  • Verify your income and employment
  • Review your credit report in detail
  • Analyze your assets
  • Calculate your debt-to-income ratio 
  • Perform a credit score check

To become approved for a mortgage, and one with a favorable rate, you'll have to prove you're in good financial standing. And, you'll have to stay that way between the time you fill out the application and the finalization of all your documents, which could take up to a couple of months.

As you begin the mortgage application process, you'll want to do your best to avoid anything that could interfere with that consistency or substantially change the condition of your finances. Here are several tips to help maintain a smooth mortgage process:


1. Don't Apply for a New Credit Card or Loan

Each time you apply for credit, it temporarily dings your credit score. Not to mention, taking on new debt could impact your chance of being approved for a mortgage.

A sensitive set of equations dictates how much you can afford to borrow. Your credit score is a big part of that equation, which could be impacted negatively by new credit applications. Each credit application could take several points off your credit score, and this can add up if you apply for several credit cards.


2. Don't Make Large Purchases

It's understandable — you've just been pre-approved for a new home mortgage, and you're excited. It is tempting to start buying new appliances and furniture - don't do this.

Making any major purchases during this time takes credit or money. Your mortgage approval is based on specific criteria, like cash reserves, debt-to-income ratio, and assets. Changing any of these could put the funding and closing of your new home in jeopardy. You'll need available funds for your down payment and closing costs anyway, so you'll want to avoid making any significant expenses until you close your loan.


3. Avoid Changing Jobs

If you plan on a job change, you might want to do it either a couple of months before applying for a mortgage or after you've closed on your home. Switching employment can negatively impact the mortgage approval process. Lenders want to see consistency in your income, and a job change can disrupt income. Some types of job changes can also increase your lending risk because it makes your income less predictable.  

For instance, two scenarios that could affect the approval of your mortgage loan are:

  • Becoming self-employed or a contract employee: If you're considering going from a W-2 employee to starting your own business or becoming an independent contractor, the best advice is to hold off until after you’ve closed on your home. While some loan programs approve loans after a year of self-employment, most prefer seeing at least a two-year self-employed history.
  • Moving to a commission-based position from a salaried job: Commissioned income is typically going to be averaged over the last year. You could potentially derail your mortgage approval by changing to this type of pay structure.


CAMPUS Can Help!

Buying a home or refinancing your existing mortgage are major financial decisions. Many factors go into the approval process, which can take several months. We’re here to help you make the best financial decisions and avoid any pitfalls along the way.

If you’re interested in home loans or have questions on the pre-approval process, please stop by any service center location or give us a call at 800-367-6440 and press 7.


Other resources:

Check Mortgage Rates

Mortgage Refinance Savings Calculator

Apply for a Mortgage


By CAMPUS USA at 7 Aug 2020, 10:25 AM

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