Applying for a mortgage involves decisions that can affect your borrowing costs and your ability to complete a home purchase. Some mortgage application mistakes happen before a buyer submits an application, while others occur after receiving a loan estimate or preparing for closing.
Avoiding these errors starts with understanding your finances, checking your credit reports, comparing loan proposals, and reading the documents your lender provides. The Consumer Financial Protection Bureau (CFPB) recommends requesting Loan Estimates from multiple lenders so you can compare interest rates, payments, upfront costs, and other terms.
Here are 10 mortgage application mistakes to watch for as you prepare to finance a home.
1. Applying Before Reviewing Your Financial Position
Before contacting lenders, get a clear picture of your income, existing debts, savings, credit history, and the cash you could reasonably use toward a home purchase.
Starting the mortgage application process without doing this can make it harder to judge the loan amounts and monthly payments presented to you.
Review your credit reports early as well. The Federal Trade Commission identifies AnnualCreditReport.com as the authorized website for obtaining the free credit reports provided under federal law. Consumers can currently access free weekly online reports from Equifax, Experian, and TransUnion through the site.
Look for unfamiliar accounts, incorrect balances, or other potential errors. Your credit history can influence lending decisions, and your credit score for a mortgage may affect the rates and terms available to you.
2. Setting Your Home Budget From the Approval Amount
A lender's approval amount and your personal housing budget serve different purposes.
The lender evaluates how much it may be willing to lend based on its underwriting standards. You still need to decide how much housing expense works with your finances.
A monthly housing budget may need to account for:
- Principal and interest
- Property taxes
- Homeowners insurance
- Mortgage insurance, if applicable
- Homeowners association dues, if applicable
- Utilities
- Maintenance and repairs
Some expenses may be included in your mortgage payment through an escrow account, while others may be paid separately.
Setting your budget before shopping for a home can help prevent the maximum approved loan amount from becoming your automatic spending target.
3. Making Significant Financial Changes During the Application
Your finances still matter after you submit your mortgage application.
Opening a new credit account, financing an expensive purchase, increasing debt balances, or changing employment could alter information relevant to underwriting.
That does not mean every financial change will prevent a mortgage from closing. Its effect depends on the circumstances and the lender's requirements.
Still, avoiding unnecessary changes while your application is being evaluated may reduce potential complications. If a significant financial change is unavoidable, contact your lender and ask what documentation may be required.
4. Assuming Preapproval Means the Mortgage Is Guaranteed
A mortgage preapproval can give you an indication of how much a lender might be willing to lend based on the information reviewed at that point.
It is not final loan approval.
The lender may still need to verify financial documents, review updated information, evaluate the property, and complete underwriting before the mortgage can close.
Treat preapproval as an early lending assessment rather than a promise. Continue keeping financial records available and respond promptly if the lender requests additional documentation.
5. Choosing a Lender Based on the Interest Rate Alone
Interest rates matter, but they represent only part of a mortgage's cost.
A lender advertising lower mortgage rates could have different upfront charges, points, lender credits, or other terms. Focusing on the rate without reviewing the rest of the proposal can make comparisons misleading.
The Consumer Financial Protection Bureau recommends requesting Loan Estimates from multiple lenders. For applications covered by the applicable federal rules, lenders generally must provide a Loan Estimate within three business days after receiving the six pieces of information that constitute an application.
The Loan Estimate can help you compare items such as:
- Loan amount
- Interest rate
- Principal and interest payment
- Mortgage insurance, when applicable
- Estimated total monthly payment
- Origination charges
- Lender credits
- Estimated closing costs
- Estimated cash to close
Review these figures together rather than selecting a lender from the interest rate alone.
6. Comparing Loan Estimates That Use Different Assumptions
Collecting several Loan Estimates helps only when you understand what you're comparing.
Suppose one proposal assumes a different loan amount, loan type, down payment, or use of discount points. The difference in estimated costs may reflect those assumptions rather than one lender simply being less expensive.
When possible, request estimates based on comparable scenarios.
Pay particular attention to lender-controlled costs, the interest rate, points or credits, monthly principal and interest, mortgage insurance, and estimated cash required at closing.
This can provide a clearer comparison of the financing choices available to you.
7. Picking a Down Payment Percentage Without Reviewing the Tradeoffs
There is no universal rule requiring every homebuyer to make a 20% mortgage down payment.
Freddie Mac states that some conventional mortgage programs may allow qualified borrowers to put down as little as 3%. Other mortgage programs have their own eligibility criteria and requirements.
The amount you put down can affect several parts of your finances, including:
| Down Payment Factor | Potential Effect |
|---|---|
| Amount paid upfront | A larger down payment requires additional cash at purchase |
| Loan balance | Putting additional money down generally reduces the amount borrowed |
| Monthly principal and interest | A smaller loan balance can reduce this portion of the payment |
| Mortgage insurance | Some loans may require mortgage insurance with a smaller down payment |
| Remaining savings | Using additional cash upfront leaves less available for other needs |
For many conventional mortgages, a down payment below 20% can mean paying private mortgage insurance.
Instead of choosing a percentage because you have heard it is standard, compare the financing programs for which you may qualify and how each option affects your upfront and ongoing expenses.
8. Underestimating How Much Cash You May Need at Closing
Saving for a down payment without preparing for other upfront expenses is another common mortgage application mistake.
Mortgage closing costs can include lender charges and expenses related to services involved in completing the mortgage and home purchase. Depending on the transaction, you may encounter appraisal charges, title-related expenses, government fees, prepaid expenses, and other costs.
Your Loan Estimate provides an early estimate of closing costs and cash to close.
Keep in mind that the estimated cash to close and closing costs are related figures, but they are not necessarily identical. Cash to close accounts for additional items associated with the transaction, including the down payment and applicable credits or deposits.
Planning for both the down payment and other required cash can reduce the chance of being caught off guard late in the transaction.
9. Reading the Loan Estimate Too Quickly
The Loan Estimate is one of the main documents available for understanding a proposed mortgage before closing.
Do not focus exclusively on the monthly payment.
Review the interest rate, projected payments, closing-cost details, loan costs, lender credits, cash to close, and information about features that could affect future payments.
For example, determine if the interest rate can change and if the loan includes a prepayment penalty.
If a charge or loan feature is unclear, ask the lender to explain it before deciding to proceed.
The standardized format also makes the document useful when comparing competing proposals.
10. Waiting Until Closing to Check the Final Numbers
For mortgages covered by the applicable federal disclosure requirements, borrowers generally must receive a Closing Disclosure at least three business days before closing.
Use that time to review the final figures rather than waiting until you are signing documents.
Compare the Closing Disclosure with the most recent Loan Estimate and check:
- Loan amount
- Interest rate
- Monthly principal and interest
- Estimated total monthly payment
- Loan costs
- Other closing costs
- Cash to close
- Loan features
Some figures can legitimately change during the mortgage process. If you encounter a change you do not understand, ask your lender or settlement professional for an explanation before closing.
Mortgage Application Mistakes Checklist
The mortgage process becomes easier to manage when you separate tasks by stage.
Before Applying
- Review your credit reports.
- Check your existing debts and monthly obligations.
- Decide how much housing expense fits your budget.
- Estimate the cash you can put toward the purchase without draining funds needed for other expenses.
When Comparing Lenders
- Request Loan Estimates from multiple lenders.
- Use comparable loan scenarios when possible.
- Compare costs beyond the interest rate.
- Review points, lender credits, mortgage insurance, and cash to close.
- Ask questions about terms you do not understand.
During Underwriting
- Respond to lender document requests promptly.
- Keep copies of submitted financial records.
- Avoid unnecessary new borrowing.
- Tell your lender about significant financial or employment changes when relevant.
Before Closing
- Review the Closing Disclosure when you receive it.
- Compare final figures with your latest Loan Estimate.
- Confirm how much cash you need to close.
- Ask about unexpected changes before signing.
Frequently Asked Questions
What Should You Avoid Before Applying for a Mortgage?
Avoid applying without first reviewing your credit reports, debts, income, savings, and housing budget. Knowing these figures can help you evaluate mortgage proposals based on your financial situation rather than relying entirely on the amount a lender may approve.
Can New Credit Affect a Mortgage Application?
It may. New borrowing can change debt balances or other information considered during underwriting. The effect varies by borrower, loan program, and lender. If you are thinking about financing a major purchase while your mortgage is being processed, contact your lender first.
Is Mortgage Preapproval a Guarantee?
No. Preapproval does not guarantee final mortgage approval. A lender may need to verify additional information and complete underwriting before issuing final approval.
How Many Mortgage Lenders Should You Compare?
The CFPB recommends contacting at least three lenders when shopping for a mortgage. Comparing multiple Loan Estimates can help you evaluate rates, payments, upfront charges, lender credits, and other loan terms.
Do You Have to Put 20% Down on a House?
No. Down payment requirements vary by mortgage program and borrower circumstances. Some conventional options allow eligible borrowers to put down as little as 3%, according to Freddie Mac. A lower down payment may result in mortgage insurance or affect other loan costs.
Make the Mortgage Decision Based on the Full Cost
Avoiding mortgage application mistakes starts before the paperwork reaches a lender. Review your finances, establish your own housing budget, and check your credit information early.
Once you begin receiving mortgage proposals, compare the complete loan terms instead of relying on the interest rate or monthly payment alone. Pay attention to upfront expenses, mortgage insurance, lender charges, and the amount of cash required to close.
Finally, keep your financial situation relatively stable during underwriting and review your final documents carefully. These actions may help you identify unexpected costs or terms before committing to a long-term mortgage.
