Throughout life, there are different occasions when you might borrow money — a $30,000 auto loan, for example, or a $10,000 personal loan to buy furniture. But chances are, your mortgage is the biggest loan you’ll ever take on.
It’s important to manage that loan wisely and keep your mortgage costs as low as possible. But if you’re not careful, you could end up spending significantly more than necessary. With that in mind, here are a few mortgage mistakes to avoid.
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Switching Jobs or Quitting Before Your Loan Goes Through
A new job opportunity can be exciting, but if you’re in the middle of the mortgage application process — meaning you’ve been approved but the loan hasn’t yet closed — it’s usually best to stay put in your current job, says Ryan Bullock, licensed real estate agent in Philadelphia and strategic real estate advisor at Real Estate Bees.
“Lenders like to see that you have two years of employment at the same job,” he explains.
Bullock says he has seen far too many people quit or change jobs after getting approved for a mortgage but before it’s finalized. While a lateral move or promotion isn’t always a problem, he still advises staying at your current job until your mortgage goes through.
The issue, he explains, is that even with a lateral move, “you might get stuck with a job that’s paying less and your budget might be different.”
Mark Worthington, branch Manager at Churchill Mortgage, agrees that maintaining stable employment is the best approach.
“Going from employed to self-employed and vice versa most often ends the loan process,” Worthington says. The same applies to going from a salaried position to one that’s commission-based.
“When the type of income you make changes, we need to see if the new type of income will be consistent,” he says.
Applying for Another Loan Right Before or During the Mortgage Process
When mortgage lenders write loans, they take on a fair amount of risk. It’s one thing for a consumer to default on a $5,000 personal loan, but it’s another thing entirely if they stop making payments on a $300,000 home loan. Because of this greater risk, lenders scrutinize a borrower’s credit activity during the mortgage process.
That’s why Bullock says it’s important to avoid new loan or credit applications immediately before and during the mortgage application process. If you give the impression that you’re overextending yourself on credit, he explains, lenders are likely to see you as a riskier borrower. That, in turn, could translate into a higher interest rate on your mortgage.
“Lenders want you to wait at least three months after applying for cars, credit cards and personal loans before applying for a mortgage,” Bullock says.
Worthington agrees. Even if you don’t charge anything to a new credit card, the application itself will appear on your credit report.
“This can lower your score and give the impression you are getting new debt,” he says.
Bullock also says that applying for another loan when your credit score is just above the mortgage qualification threshold for a mortgage could render you ineligible. For example, borrowers typically need a minimum credit score of 620 to qualify for a conventional mortgage. If your score is a 623 and a hard inquiry for a credit card application lowers your score to 618, you lose the chance to secure a more affordable loan.
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Looking Only at Rates, Not Closing Costs
It’s natural to focus on interest rates when shopping for a mortgage lender. But it’s a big mistake to overlook closing costs, which are the fees lenders charge to finalize your loan.
Some closing costs may not be negotiable. Recording fees — charged to make your mortgage a matter of public record — are typically beyond a lender’s control and generally cannot be negotiated. But other fees, such as application and origination costs, are often set at lenders’ discretion.
One lender might offer a lower interest rate than another but charge much higher closing costs. The lower rate might seem like a good deal — but only if you keep the loan for a long time. Otherwise, you could end up refinancing in a year or two, which means paying more up front for a lower rate could end up costing you more overall.
Paying Off Your Mortgage Early When You Have a Low Interest Rate
You’ll often hear that paying off a mortgage early is a great way to save money on interest. While that may be true in some cases, it depends on the mortgage rate you’ve locked in.
In 2020 and 2021, it was possible to sign a 30-year mortgage at under 3%. If you have a 30-year loan with a fixed interest rate that’s less than 3%, you may be able to earn a higher interest rate in a high-yield savings account than what your mortgage lender is charging you. Plus, if you’re comfortable investing, you may be able to generate a considerably higher rate of return than the sub-3% rate on your mortgage.
[See: 2025 Mortgage Rate Forecast: When Will Rates Go Down?]
Refinancing Too Often, or When You’re Thinking of Selling Your Home
Under the right circumstances, refinancing can be a good way to save money on your mortgage. If you’re able to swap a loan with a higher interest rate for one with a lower rate, you could lower your monthly payments and spend less on interest over time. But refinancing too often or under the wrong circumstances could cost you money.
Every time you refinance a mortgage, you pay closing costs. Refinancing too frequently could negate the savings gained from a lower interest rate.
Similarly, refinancing usually isn’t a smart move if you’re thinking of selling your home since you likely won’t recoup your closing costs.
Imagine that refinancing lowers your monthly mortgage payments by $200, but you have to shell out $5,000 in closing costs to put that new loan in place. If you only end up staying in your home another year, you’ll save much less than the $5,000 cost.
Before you refinance, think about whether you’ll stay in your home long enough — or keep your new loan long enough — to make up for your closing costs. Otherwise, you may want to hang onto your existing mortgage.
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5 Mortgage Mistakes That Could Cost You Thousands originally appeared on usnews.com
