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What not to do after applying for a mortgage is critical to understand. Once you’ve submitted your mortgage application, the journey to homeownership is far from over. The U.S. housing market, which continues to experience significant shifts in pricing and interest rates, can make or break your chances of approval. The wrong move at the wrong time could delay your home purchase or, worse, cause your application to be rejected.
The mortgage process is already complex. Home prices have steadily increased, and mortgage rates remain elevated. According to the National Association of Realtors (NAR), the median sales price of existing homes in the U.S. hit a record high of $410,000 in September 2023. With numbers like these, even small missteps can derail your application. Therefore, it’s important to know what actions to avoid once you’ve applied for a mortgage.
This blog will guide you through the top mistakes to avoid in the mortgage process, backed by real U.S. financial statistics and expert advice. By doing so, you’ll be well on your way to closing successfully in today’s competitive housing market.
One of the biggest mistakes homebuyers make after applying for a mortgage is making large purchases. Whether it’s a new car, a vacation, or expensive furniture, spending big money on these items can raise your debt-to-income ratio, which is a key factor lenders consider.
When you apply for a mortgage, your lender will look at your debt-to-income (DTI) ratio. This ratio is calculated by dividing your total monthly debt payments by your gross monthly income. The lower your DTI, the better your chances of securing the loan. Lenders prefer to see a DTI of 36% or lower. In fact, according to a 2023 report from the Federal Reserve, applicants with a DTI above 43% often find it more difficult to get approved for a mortgage.
Large purchases can also impact your credit score, especially if you finance them. Your credit utilization ratio—the amount of credit you use compared to your total available credit—could increase, potentially lowering your score. Even a slight drop in your credit score could mean higher interest rates or, in some cases, disqualification from the mortgage.
Tip: Hold off on big purchases until after your loan has closed. If you absolutely need to buy something, try to pay in full without taking on new debt.
Changing jobs or careers after applying for a mortgage is a risky move. Lenders value financial stability, and one of the key indicators of stability is steady employment. When you change jobs, even if it’s for a higher salary, your lender may see it as a sign of financial instability.
According to the U.S. Bureau of Labor Statistics, as of October 2023, the unemployment rate in the U.S. was 3.9%. While this is relatively low, it highlights the importance lenders place on job security. They want to see that you can maintain a reliable income to support your mortgage payments.
Tip: Stay in your current job until after closing. If you must change jobs, be prepared to provide documentation proving that your new job offers the same or greater income stability.
It may seem like a good idea to close credit accounts to reduce your debt or to open new ones to increase your credit limit. However, both actions can have negative effects during the mortgage application process.
Closing credit accounts reduces your total available credit, which increases your credit utilization ratio. This can lead to a dip in your credit score, which may affect your mortgage approval. Even opening a new credit card or taking out a loan can increase your credit inquiries and lower your credit score. According to Experian, a major credit reporting agency, every time you apply for credit, it can cause a small dip in your score, sometimes by as much as five points.
In addition, lenders look closely at your credit history. A sudden change in your credit profile can make you seem like a higher-risk borrower. In fact, FICO scores—which are used by most lenders—are calculated based on factors such as your payment history (35%), credit utilization (30%), and length of credit history (15%).
Tip: Avoid making changes to your credit profile during the mortgage process. Keep credit accounts open and refrain from taking out any new loans or credit cards.
Missed or late payments can severely damage your credit score and ruin your chances of securing a mortgage. Your credit score is one of the key factors that lenders use to determine your loan eligibility, and even a slight drop in your score can change the terms of your loan, or even result in a denial.
In the U.S., payment history makes up 35% of your FICO score. A single missed payment can stay on your credit report for up to seven years. According to data from the Consumer Financial Protection Bureau (CFPB), late payments can cause your credit score to drop by as much as 100 points, depending on the type of loan and your overall credit profile.
Tip: Make sure all bills are paid on time, including credit cards, student loans, and utility bills. If you are struggling to keep up with payments, contact your creditors to explain your situation and see if they can offer a temporary solution.
When planning for your home purchase, many buyers focus only on the down payment. However, closing costs can be just as significant. Closing costs are typically 2% to 5% of the home’s purchase price. For a $300,000 home, this could mean an additional $6,000 to $15,000 in costs at closing. According to the National Association of Realtors (NAR), the average closing cost for a homebuyer in 2023 was around $5,000, excluding the down payment.
Failure to plan for these costs can cause delays in the closing process, especially if you’re relying on additional funds to cover them. Many buyers forget to factor in expenses like home inspection fees, title insurance, and appraisal costs.
Tip: Always budget for closing costs, and ensure that you have enough funds available to cover them. Talk to your lender upfront to get an estimate of what your closing costs will be, so there are no surprises when you reach the closing table.
Once you’ve applied for a mortgage, avoid applying for new credit, including car loans, credit cards, or personal loans. Every time you apply for credit, it creates a hard inquiry on your credit report, which can lower your credit score. This is especially important if your credit score is borderline for approval.
Lenders are wary of any significant changes to your credit profile during the application process, as they may indicate financial instability. According to the Federal Reserve’s 2023 Economic Well-Being Report, the number of Americans carrying credit card debt has increased, highlighting the importance of managing your credit carefully.
Tip: Stick to using existing credit and refrain from applying for any new credit lines until after your mortgage has closed.
Navigating the mortgage process in the U.S. housing market can be challenging. With the economy being volatile, homebuyers face rising mortgage rates and high home prices. However, by understanding what not to do after applying for a mortgage, you can increase your chances of securing your home loan.
To summarize, avoid making large purchases, changing jobs, opening or closing credit accounts, making late payments, and underestimating closing costs. By staying financially responsible and planning ahead, you can smooth your path to homeownership. With the right preparation, you’ll be able to secure the best mortgage terms possible in today’s competitive housing market.
Whether you’re a first-time homebuyer or an experienced one, understanding these critical mistakes is essential. By following these tips, you’ll be one step closer to achieving your homeownership dreams. Get in touch with OLLender today and register for a free quote to help guide you through the mortgage process.