7 Top Mortgage-Shopping Mistakes to Avoid

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Buying a home is one of the biggest decisions you can make, and it’s likely the largest purchase you will ever make. So it’s no surprise that there are multiple ways you can trip up.

Getting a mortgage is about more than having your offer accepted and signing on the dotted line. (Or hundreds of dotted lines, which is what it feels like at the closing table.)

Here, our experts reveal the top seven landmines in the mortgage process and how to avoid them.

1. Neglecting to check your credit before starting the process.

Approaching mortgage lenders without having some idea where your credit lies is like going to an important job interview without checking for spinach in your teeth. “I’m amazed at people who apply for a mortgage and they’re shocked at things on their credit report,” says LearnVest Planning Services certified financial planner™ Ellen Derrick. “They say, ‘I had no idea that I forgot to pay my Best Buy card!’”

Mortgage lenders are going to go through your credit report with a fine-toothed comb, and they’re going to make decisions based on how creditworthy you appear to be, including whether to offer you a loan at all … or at what rates. If you don’t check your credit score first, you stand to lose money, or your potential dream home.

RELATED: I Want to Get My Credit Report Checklist

What to do instead: Ideally, you’ll check your credit well before you begin hunting for a home, and work to increase your score if you need to, or dispute errors on your report, since those can take time to rectify. You’re entitled to a free credit report from each of the three bureaus (Experian, Equifax and TransUnion) once a year, and you can pull those from AnnualCreditReport.com. If there are errors, fix them. (Some examples: Any accounts listed that aren’t yours, accounts incorrectly listed as being in collections, incorrect large balances reported, or incorrect late payments reported.) The bureaus have 30 to 45 days to investigate the issue and fix it accordingly. Use free resources, like Credit Karma or Credit Sesame, to get an estimate of your credit score for TransUnion and Experian. If you want to see your actual FICO scores for each credit bureau, buy them outright (about $15 to $20 each) instead of committing to unnecessary and expensive monitoring when you sign up for a free trial.

2. Applying for new credit simultaneously.

When you’re applying for a mortgage, your credit is under serious scrutiny. Apply for a new credit card and your credit score will dip temporarily due to the application credit check, which counts as a hard inquiry on your account for about 12 months. The same goes for closing an old account—it will affect the amount of credit you have available, which will negatively affect your score. (Note: For car or home loans, all credit inquiries made within about two weeks of each other count as one inquiry, so when you’re shopping around for mortgage brokers, be sure to submit all of your loan applications around the same time.) 

What to do instead: While applying for a mortgage, hold off on opening up a Macy’s store card or applying for a car loan. “You really have to watch where you step in terms of your credit,” says Greg McBride, senior financial analyst at Bankrate.com. “You don’t want to open up any lines of credit and you don’t want to close any out. Just keep doing what you’ve been doing.” And of course, continue making on-time payments and chipping away at any debt.

RELATED: 10 Top Credit Mistakes to Avoid

  • Nadine Mesias

    Thank you! Thank you! Thank you! Three years ago, I prematurely jumped in head first and attempted to buy my
    first property and made damn near all of the mistakes you listed! HA!! It was a painful learning experience to say the least. I wished I saw this article way back then.

    Another important point…your lenders pre-approval only lasts for a certain period of time (I forget how long) but if you don’t find you home within the pre-approval time frame, you will have to go through another hard credit check again. Great article.

  • Jonathan Milton

    I don’t quite agree with your notion that additional costs like real estate taxes, insurance, etc cost on average !% of the home’s cost. Number one, it depends on whether you are buying a condo (with additional HOA fees), or a multi-family (extra insurances and repairs) or live in a high RE tax state like New Hampshire. The costs can vary quite a lot vs the home value. Also, if you can manage it, this Bernanke interest rate can’t last forever (and if it does, we are sunk!), so borrow as much as you can!

    • LibbyKane

      Hi Jonathan– Thanks for the catch! The piece has been updated to reflect the correct information — namely, that maintenance costs ONLY should average about 1%.

  • aokimoonchild

    You would do well to follow the advice in this article. I have no debt apart from a CC with a very low limit; which I usually pay off as I use it (I never carry a balance). I had bought something which represented about 60% of the limit and paid it off the day before I went in for my mortgage loan application. Well when they did the credit check it came back that I was using too much of my available credit since the payment takes a few days to be reported to the credit agency. The bank helped me raise my credit score by adding in my utility bills but I wanted to kick myself for not knowing how my seemingly innocent purchase was going to negatively impact my credit report despite never having carried a balance on the CC… spend time making sure your credit report is perfect!

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