Pre-Approved for a Mortgage? Here Are the Biggest Mistakes to Avoid
Receiving a mortgage pre-approval is an exciting milestone. It signals that a lender has reviewed your financial profile and determined that you qualify for a loan up to a certain amount—based on your current income, assets, credit, and debt.
But here’s what many buyers don’t realize: pre-approval is not a final loan approval. Your financing can still be delayed—or even denied—if your financial situation changes before closing.
From the moment you’re pre-approved until the day you sign closing documents, it’s critical to maintain financial stability. Below are the most common (and costly) mistakes buyers should avoid during this period.
1. Making Large Purchases
It’s tempting to start buying furniture, appliances, or a new vehicle once you’ve found a home. However, large purchases can significantly affect your debt-to-income ratio and credit profile.
When lenders review your file before closing, they re-check your credit and financial standing. Adding new debt—even if you can afford the payments—may change your qualification status.
Best practice: Wait until after closing to finance big-ticket items.
2. Opening or Closing Credit Accounts
Applying for new credit cards or financing promotions can trigger a hard credit inquiry and potentially lower your credit score. Even closing existing accounts can impact your credit utilization ratio, which affects your score.
Lenders want to see consistency. Sudden changes in your credit profile can raise red flags.
Best practice: Avoid opening or closing credit accounts until after closing.
3. Changing Jobs or Employment Structure
A new job, promotion, or switch from salaried to commission-based income may seem positive—but to a lender, it introduces uncertainty.
Mortgage approval is based heavily on stable, documented income. Any employment changes may require additional verification and could delay or jeopardize closing.
Best practice: If possible, avoid changing employment during the mortgage process. If a change is unavoidable, notify your lender immediately.
4. Making Large Bank Deposits Without Documentation
Mortgage underwriting requires a clear paper trail. Large, unexplained deposits can complicate the approval process because lenders must verify the source of funds.
For example, if a family member provides financial assistance, the lender may require a formal gift letter and documentation confirming the funds are not a loan.
Best practice: Keep financial transactions simple and well-documented during this period.
5. Missing or Late Payments
Your credit is monitored through closing. Even one late payment can lower your score and potentially affect loan terms.
Best practice: Continue making all payments on time—every time.
6. Increasing Credit Card Balances
Even if you don’t open new accounts, increasing balances on existing credit cards can raise your debt-to-income ratio and lower your credit score.
Lenders calculate your qualifying ratios based on minimum monthly payments. Higher balances can reduce your borrowing capacity.
Best practice: Keep balances low and consistent.
7. Co-Signing for Someone Else
Co-signing a loan makes you legally responsible for that debt—even if you’re not the one making the payments. This new obligation will count against your debt ratios and could affect your loan approval.
Best practice: Avoid co-signing on loans until after your home purchase is complete.
8. Making Unusual Financial Moves
Withdrawing large amounts of cash, moving money between accounts without explanation, or investing funds earmarked for closing costs can complicate underwriting.
Lenders will verify assets again before closing to ensure funds for your down payment and closing costs are available and properly sourced.
Best practice: Keep your financial activity stable and predictable.
9. Ignoring Lender Requests
Underwriting often requires additional documentation. Delays in providing requested paperwork can slow down your loan approval and impact your closing timeline.
Best practice: Respond quickly and thoroughly to all lender communications.
10. Assuming “Clear to Close” Happens Automatically
Even days before closing, lenders perform final verifications—credit checks, employment confirmation, and asset reviews. Approval is not final until you receive official confirmation.
Staying disciplined financially through the entire process ensures there are no surprises at the finish line.
The Bottom Line
Pre-approval is a powerful step forward, but it’s based on your financial snapshot at a specific moment in time. Until you have the keys in hand, your lender expects that snapshot to remain consistent.
The safest approach?
Maintain steady employment, avoid new debt, keep credit balances low, and communicate openly with your lender and real estate professional.
Buying a home is an exciting journey. Protect your approval by staying financially steady from offer to closing—and you’ll move into your new home with confidence and peace of mind.
Mark Montross
Catamount Realty Group
85 Prim Road, Suite 202
Colchester, VT 05446
802-825-1353
[email protected]