Money Mistakes to Avoid Before a Home Loan
TL;DR
Before applying for a mortgage, make sure your finances are stable. Avoid large purchases, sudden job changes, new debt, closing old accounts, unexplained deposits, missed payments, and skipping pre-approval. Staying consistent with your money habits increases your chances of mortgage approval and a smoother home-buying experience.
Smart financial moves to boost your mortgage approval and secure your dream home
Buying a home is exciting — but before you even start house hunting, you’ll want to make sure your finances are in order. Lenders look closely at your financial picture, and even small missteps can hurt your chances of getting approved for a mortgage with the best possible terms.
The good news? With some planning, you can set yourself up for success. Here are some of the most common money mistakes to avoid before applying for a home loan.
1. Don’t Make Big Purchases
That new car or expensive furniture set may be tempting, but hold off until after you’ve closed on your home. Large purchases increase your debt and lower your credit score, which can signal risk to lenders. Keeping your spending steady shows financial stability.
2. Avoid Changing Jobs Suddenly
Lenders like to see steady employment history. If possible, avoid switching jobs right before applying for a loan. A new job might mean a probation period or less predictable income, which could make lenders cautious. If a career move is unavoidable, talk to your loan officer about the best way to document your income.
3. Don’t Take on New Debt
Opening new credit cards or taking out personal loans right before applying can hurt your debt-to-income ratio — a key factor lenders use when approving loans. Focus on paying down existing balances instead of adding new debt.
4. Don’t Close Old Credit Accounts
It might seem smart to simplify your credit history, but closing old accounts can actually lower your score. Length of credit history makes up part of your credit score, so keep those older accounts open (even if you don’t use them often).
5. Avoid Large Unexplained Bank Deposits
Lenders want to know where your money comes from. Sudden, unexplained deposits in your bank account could raise red flags. If you’re receiving a gift or assistance for your down payment, make sure it’s properly documented.
6. Don’t Miss Any Payments
This one’s critical: never miss a payment on your credit cards, student loans, car loans, or any other bills. Payment history is the single most important factor in your credit score, and one missed payment can significantly impact your mortgage approval.
7. Don’t Skip the Pre-Approval Step
While not exactly a “mistake,” many buyers underestimate the power of getting pre-approved. Pre-approval shows sellers you’re serious and gives you a clear picture of your budget. Skipping this step could lead to disappointment if you fall in love with a home that’s out of reach.
Bottom Line
Applying for a home loan doesn’t have to be overwhelming — but avoiding these common mistakes can make the process smoother, less stressful, and more rewarding. By keeping your finances steady and your credit strong, you’ll be in a great position to secure the home of your dreams.
Remember: the choices you make today can affect your future mortgage approval. Stay focused, stay consistent, and when in doubt, lean on trusted professionals for guidance.
Frequently Asked Questions
Q: What is the most common mistake people make before applying for a home loan?
A: The most common mistake is making large purchases, like cars or furniture, right before applying. It can lower your credit score and affect your approval.
Q: How can I improve my chances of mortgage approval?
A: Focus on paying down debt, keeping credit accounts open, and getting pre-approved. Need help understanding your options? A trusted loan officer can guide you through the process.
Q: Should I change jobs before applying for a mortgage?
A: It’s best to maintain steady employment. Sudden job changes can make lenders cautious, but if unavoidable, document your income clearly.
Q: Can missing a single payment affect my mortgage approval?
A: Yes, even one missed payment can significantly impact your credit score. Staying current on all bills is essential for approval. If you need help budgeting, consider consulting a financial advisor.
Q: Do I need to pre-approve before house hunting?
A: Yes, pre-approval gives you a clear budget and shows sellers you’re serious. It makes the process smoother and reduces the risk of falling in love with a home out of reach.
By Alex Parmenidez, REALTOR® | Coldwell Banker Realty
Alex Parmenidez | Realtor® Licensed CT-MA-RI | Coldwell Banker Realty
196 Waterman St, Providence, RI 02906
C: (401) 426-4825 | O: (401) 351-2017
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