Top Mistakes to Avoid When Applying for a Mortgage

3 June 2025

Buying a home is one of the biggest financial decisions you'll ever make. But when it comes to applying for a mortgage, a few simple mistakes can cost you thousands of dollars—or even prevent you from getting approved altogether.

If you're planning to buy a home soon, you need to be aware of the most common mortgage mistakes so you don't fall into these costly traps. Let’s break them down so you can navigate the home loan process smoothly and confidently.

1. Ignoring Your Credit Score

Your credit score is like a financial report card—it tells lenders how responsible you are with money. The higher your score, the better your mortgage terms will be.

Common Mistakes:

- Not Checking Your Credit Score Before Applying: You may think your credit is solid, but errors on your report could be dragging it down.
- Making Late Payments: Even one late payment can hurt your score.
- Opening New Credit Lines Right Before Applying: Applying for new credit cards or loans can temporarily lower your score and make lenders nervous.

How to Avoid This Mistake:

- Check your credit report months before applying for a mortgage. If there are errors, dispute them.
- Pay off outstanding debts and avoid late payments.
- Keep old credit accounts open because they add to your credit history length.

2. Not Saving Enough for the Down Payment

Sure, some loans allow you to put down as little as 3%—but is that a good idea? A bigger down payment reduces your loan amount, lowers your interest rate, and avoids costly private mortgage insurance (PMI).

Common Mistakes:

- Assuming You Only Need The Minimum Down Payment: More money down means better loan terms.
- Not Factoring in Closing Costs: These can add thousands to your upfront expenses.
- Using Up All Your Savings: Draining your bank account for a down payment can leave you in a financial bind.

How to Avoid This Mistake:

- Start saving early and aim for at least 20% down if possible.
- Budget for additional costs like closing fees, moving expenses, and home repairs.
- Keep an emergency fund intact—you don’t want to be house-poor!

3. Changing Jobs Right Before Your Loan Closes

Lenders love stability. If you switch jobs, even for a higher salary, it could delay or even derail your mortgage approval.

Common Mistakes:

- Quitting or Changing Jobs Mid-Process: Even a small career move can raise red flags for lenders.
- Switching to Self-Employment: Without a long history of stable income, lenders may hesitate to approve your loan.

How to Avoid This Mistake:

- Stay put until your mortgage deal is finalized.
- If you must change jobs, choose a role in the same industry with a similar or higher salary—then communicate with your lender immediately.

4. Taking on New Debt Before Closing

Picture this: You've just been pre-approved for a mortgage, and you're feeling great. But then you finance a brand-new car or rack up a huge credit card balance for furniture. Suddenly, your debt-to-income ratio spikes, and your lender pulls the plug on your loan.

Common Mistakes:

- Opening New Credit Accounts: Every new line of credit impacts your debt-to-income ratio.
- Making Large Purchases on Credit: Even if you plan to pay it off quickly, it can raise red flags.
- Co-Signing a Loan for Someone Else: You may not be making the payments, but lenders still count it as your debt.

How to Avoid This Mistake:

- Keep your spending in check until after your loan closes.
- Pay down existing debts before applying for a mortgage.
- If you’re desperate to make a big purchase, talk to your lender first.

5. Not Shopping Around for the Best Mortgage

Would you buy the first car you test drive? Probably not. So why would you accept the first mortgage offer you get?

Common Mistakes:

- Accepting the First Offer: Different lenders provide different rates and terms.
- Not Comparing Loan Programs: FHA, VA, and conventional loans all have different benefits.
- Ignoring Fees: A lower interest rate might come with higher closing costs.

How to Avoid This Mistake:

- Get quotes from multiple lenders. Even a small difference in interest rates can save you thousands over the life of your loan.
- Consider all loan options and work with a mortgage broker if needed.
- Ask about hidden fees that could eat into your savings.

6. Overestimating How Much House You Can Afford

Just because a lender approves you for a certain amount doesn’t mean you should borrow that much. You don’t want to end up house-poor, stuck with a mortgage that leaves little room for other expenses.

Common Mistakes:

- Relying Solely on Pre-Approval Amounts: Lenders look at your income and debts but not necessarily your lifestyle and financial goals.
- Forgetting About Additional Costs: Property taxes, homeowners insurance, HOA fees, maintenance, and utilities add up quickly.
- Stretching Your Budget Too Thin: A mortgage payment that eats up most of your paycheck leaves little room for savings and emergencies.

How to Avoid This Mistake:

- Use the 28/36 rule: Your mortgage payment shouldn’t exceed 28% of your gross monthly income, and total debts shouldn’t exceed 36%.
- Factor in all housing-related expenses when determining your budget.
- Leave room in your budget for savings and unexpected expenses.

7. Skipping Mortgage Pre-Approval

House hunting without a mortgage pre-approval is like shopping without knowing your budget—it wastes time and can lead to heartbreak if you fall in love with a home you can’t afford.

Common Mistakes:

- Not Getting Pre-Approved Before House Hunting: Without a pre-approval, sellers may not take your offer seriously.
- Confusing Pre-Approval with Pre-Qualification: Pre-qualification is just a rough estimate; pre-approval involves verifying your finances.
- Waiting Until the Last Minute: A pre-approval helps you move quickly in a competitive market.

How to Avoid This Mistake:

- Get pre-approved before looking at homes.
- Work with a reliable lender who can guide you through the process.
- Keep your financial documents organized—lenders will need pay stubs, tax returns, and bank statements.

8. Not Understanding Loan Terms

A mortgage isn’t just about the monthly payment—terms like interest rates, loan duration, and fees can significantly impact your long-term financial picture.

Common Mistakes:

- Focusing Only on the Interest Rate: Other elements like loan type and closing costs matter too.
- Choosing an ARM Without Understanding the Risks: Adjustable-rate mortgages (ARMs) start low but can increase over time.
- Ignoring Total Loan Costs: Lower monthly payments might mean you’re paying more interest over time.

How to Avoid This Mistake:

- Ask your lender to explain all loan terms in simple terms.
- Compare fixed-rate and adjustable-rate mortgages carefully.
- Use mortgage calculators to estimate your long-term costs.

Final Thoughts

Applying for a mortgage is a complex process, but avoiding these common mistakes can make it a lot smoother. The key is to plan ahead, stay financially stable, and take the time to compare your options. If you’re proactive and mindful of these pitfalls, you’ll be well on your way to securing the best mortgage for your dream home.

So, before you start filling out that mortgage application, take a deep breath, do your homework, and make smart financial choices. Your future self (and your wallet) will thank you!