13 Things You Should Avoid If You Plan to Get a Mortgage or Refi Any Time Soon

If you're looking to buy your first home or refinance your current home because of low rates, you'll have to go through a home loan process. 

Determining how to get a loan that's best for your situation can take time and often involves comparing the best mortgage lenders to see what loan terms are available. Once you've picked a lender to work with, you'll need to submit a mortgage loan application and then wait to see whether you're approved.

Throughout the entire loan process, and especially while waiting for your approval, you'll want to avoid doing these 13 things or risk getting your loan denied.

Although it can be difficult to plan when you need to quit or switch your job, it's in your best interests to put off this action until after you've qualified for a mortgage loan. 

Changes in your income and work history can significantly impact whether you qualify for a loan because lenders want to see a sufficient stream of income and a steady work history.

If you know you're applying for a home loan soon, eliminate some money stress and be sure to plan ahead by keeping your job situation in check so you can qualify for the best loans.

Making a large purchase like a car isn't a good decision if you're going through the home loan process. That's because mortgage lenders will check your debt-to-income ratio.

Cars can cost a lot of money, so most people have to take out a loan to buy a new vehicle. Because your debt-to-income ratio is a comparison of how much money you earn versus how much money you spend on mandatory expenses, a monthly payment on an auto loan will increase your overall debt-to-income ratio. 

This could make your financial situation look like a higher risk to lenders.

Certain loans require a minimum credit score for approval, which means you shouldn't get out of hand with your credit card purchases while searching for a home loan.

That's because your credit score can take a hit if your credit utilization gets too high. Your credit utilization ratio is how much available credit line you have versus how much of that credit line you've already used up.

Even if you still get approved, you might be wasting money by getting a higher interest rate. Instead, avoid foolish mistakes by just not using your cards until you close on the loan.

Smart Drivers, Smarter Savings

Compare car insurance rates in your area

See if you qualify for a lower rate in less than 2 minutes

Check Rates

By clicking the button above, I understand and agree that this site uses site visit recording technology (provided by Trusted Form, Jornaya, and Microsoft Clarity) Privacy Policy

Lenders weigh a variety of factors when determining whether they should approve your mortgage, which is the same thing most regular people do when deciding whether someone can borrow money from them.

One of the biggest deciding factors in the loan process is looking at the financial history of an individual, which includes their banking history. If you have a friend or family member with a good history of borrowing and paying back money, you're more likely to lend them money.

Mortgage lenders feel the same way, which is why you shouldn't change your banking relationships during the loan process.

It's best to avoid putting a lot of spend on your credit cards while applying for a home loan and it's also a good idea to stop applying for any new credit cards too.

New lines of credit can affect your credit score and can also represent potential debt to lenders investigating your financial history. The more possible debt you have, the less likely you'll be approved for a new loan.

Pro tip: Once you get approved, however, you may want to find a top credit card that you can use after your home closes to buy home improvement products. 

Your credit, income, and other financial information are laid bare for lenders to look over when they're deciding whether you qualify for a mortgage. 

Lenders may have questions throughout the process that require some clarification on your end. If you get any questions from the lender, be sure to answer them promptly and with the exact information requested.

If you ignore questions from your lender or don't provide the needed information, you could risk being denied the loan or delaying the loan process. Just be as responsive as possible.

Getting any other loan during your mortgage process can affect your outcome of qualifying for your home loan. 

It makes sense to make yourself available to help your friends and family if they need a co-signer on a loan, but you should worry about your own loan first. That's because even if you won't be the one making the payments on another loan, you're still responsible for the entire loan as a co-signer.

So let your friends and family know you won't be able to help them until your mortgage process is over. 

Credit checks are a common way for companies to see whether you're financially responsible enough to borrow money from them or use their services. 

You may experience a hard credit check when you apply for a new credit card or loan and possibly when you sign up for services like cable TV or internet.

Lenders don't want to see too many recent checks because it can look like you're trying to open up a lot of lines of credit or loans all at once.

You always want to make sure you don't miss payments on any loans or other debt, but it's especially important to keep on top of payments when applying for a loan as big as a mortgage. 

Missed or late payments are a big red flag for lenders because it shows a risk of you potentially missing or making late payments to them if they loan you money. 

And why would someone want to give you a home loan if you're missing payments on other loans?

The average length of your credit history is an important factor in your credit score. So closing any type of credit account effectively ends the history of that product and can negatively impact your credit.

For example, you may decide to cancel a credit card because you don't want to pay its annual fee. But instead of closing the card and ending its credit history, you could see if there's an option to change to a different credit card product from the same issuer that doesn't have an annual fee. 

This will continue the life of the original product and preserve its credit history so your credit doesn't take a hit.

Pro tip: Once your mortgage is approved, it's good to evaluate your credit cards to make sure they are the best ones for you. Here is some guidance on how to choose the best credit cards available for your credit profile.

If you don't typically have large deposits going into your bank accounts on a regular basis each month, don't suddenly make a few during the mortgage process. 

The loan company you're working with wants to see your normal income and debt, so anything out of the ordinary could be a red flag for the underwriter on your mortgage.

Although it may not be uncommon to receive financial help from family members for a down payment on a home, any gifted money should be planned out and received well ahead of time. 

There's nothing wrong with asking questions during the mortgage approval process. 

You're potentially signing up to borrow a huge amount of money for your future home, so feel free to ask your loan officer any mortgage questions you have when it comes to things you don't understand or that you want to understand more deeply.

Your loan officer needs to know about your financial situation and it's only fair you should know how the loan process works. If nothing else, asking your questions will lessen the stress of the situation so you can be more excited about being a homeowner or getting a better mortgage rate.

As time goes by, the old debts you owe will typically affect your credit less and less, but it's still not a bad idea to pay off old debts just to have a clean slate.

But if you don't want to mess with your mortgage approval, you'll want to wait to pay off old debts until after the process is done. 

Making a payment on an old collections debt without completely paying off the debt can refresh your credit history and have a big impact on your credit score. This could in turn affect your eligibility to be approved for your mortgage.

Getting approved for a mortgage is a big deal, but it can take a lot of time and preparation to get yourself into a situation where it's possible. 

To make it easier on yourself, remember to avoid the things we've touched on in this article, including doing anything that could decrease your credit score or appear as a red flag to mortgage lenders.

If you can stick to these guidelines and practice good credit-building habits, you'll place yourself in a great position to qualify and keep more money in your bank account throughout the length of your loan.