Top 5 Mistakes to Avoid When Applying for a Home Loan

Many of us dream of owning a home, but let’s be honest—applying for a home loan can be stressful. With so much at stake, even small mistakes can lead to delays, higher costs, or worse, a declined application.

The good news? These mistakes are avoidable if you know what to look for. By understanding and preparing for the process, you can take control and make things much easier on yourself.

Here are five frequent mistakes people tend to make when applying for a home loan, along with practical tips to help you steer clear of them.

1. Skipping Preapproval Before House Hunting

Preapproval might seem like a hassle when you’re eager to start house hunting, but skipping this step is one of the biggest mistakes you can make.

Preapproval gives you a clear idea of how much you can borrow and shows sellers that you’re serious about buying. Without it, you could fall in love with a home only to find out it’s outside your budget or lose out to a buyer who’s already preapproved.

Many lenders now offer online home loans, making the preapproval process faster and more convenient than ever. You can upload documents, check eligibility, and even get your preapproval letter without needing to visit a bank in person.

This digital approach saves time, helps you stay organized, and gets you ready to make competitive offers as soon as you find the right property.

By getting preapproved early, you’ll know exactly what price range to focus on, making your house-hunting experience smoother and less disappointing.

2. Not Checking Your Credit Score in Advance

Your credit score is one of the biggest factors lenders consider when evaluating your application. A strong score can mean better loan terms, like lower interest rates and fewer fees, while a poor score can lead to higher costs—or even a denied application. Many people apply for a home loan without knowing their credit score, which is a big mistake.

Start by pulling your credit report from the major credit bureaus. Check for any errors or inaccuracies, such as incorrect account balances or late payments you didn’t actually make. Fixing these errors early can boost your score before you apply.

Also, avoid taking on new debts or making big purchases in the months leading up to your application. These can affect your debt-to-income ratio and make you look riskier to lenders. Instead, focus on paying down existing debts and keeping your credit utilization low.

Taking these steps to prepare your credit score can save you thousands over the life of your loan.

3. Ignoring Total Costs Beyond the Down Payment

When you’re buying a home, it’s easy to focus only on the down payment. While that’s certainly an important part of the cost, there’s a lot more to consider.

Closing costs, property taxes, homeowners insurance, and ongoing maintenance expenses can add up quickly. Many buyers underestimate these costs, which can put them in a tight financial spot after moving in.

For example, closing costs alone typically range from 2% to 5% of the loan amount. On a $300,000 home, that’s an additional $6,000 to $15,000 you’ll need upfront. Property taxes and insurance can also add hundreds—or even thousands—of dollars to your monthly expenses.

To avoid surprises, create a realistic budget that accounts for these costs. Use a mortgage calculator to estimate your monthly payment, including taxes and insurance. And don’t forget to factor in maintenance costs, especially if you’re buying an older home that may need repairs or updates.

Being aware of the full financial picture will help you make informed decisions and avoid stretching yourself too thin.

4. Overlooking Loan Options That Fit Your Needs

Not all home loans are created equal. Each type of loan has its own benefits and requirements, and choosing the wrong one can cost you more than necessary.

Unfortunately, many buyers don’t take the time to explore their options and end up with a loan that doesn’t match their financial goals or situation.

For example, fixed-rate mortgages offer predictable payments, making them a good choice for long-term buyers.

Adjustable-rate mortgages (ARMs), on the other hand, start with lower rates but can increase over time, which might be better for someone who plans to sell or refinance within a few years.

There are also specialized options like VA loans for veterans, FHA loans for buyers with lower credit scores, and jumbo loans for high-value properties. Each comes with unique terms and advantages.

Do your homework and speak with a lender to understand which options are available to you. Taking the time to find the right fit can save you money and ensure you’re set up for success.

5. Failing to Lock in Your Interest Rate at the Right Time

Interest rates are constantly changing, and even a small increase can significantly impact your monthly payment and overall loan cost.

That’s why locking in your rate at the right time is so important. Unfortunately, many buyers either forget to lock their rate or wait too long, hoping rates will drop further, only to see them go up instead.

When you lock in your rate, your lender guarantees that rate for a specific period, usually 30 to 60 days. This protects you from rate increases while you finalize your home purchase.

However, it’s important to understand the terms of your rate lock. If your closing process takes longer than expected, you may need to pay for an extension.

To avoid issues, stay in close contact with your lender and make sure all necessary paperwork is submitted on time.

If rates are favorable and you’re confident in your loan terms, don’t hesitate to lock in. It’s better to secure a good rate now than risk paying more later.

Owning a home is an exciting milestone, but applying for a home loan can feel daunting. By avoiding these common mistakes—skipping preapproval, ignoring your credit score, underestimating total costs, overlooking loan options, and delaying a rate lock—you’ll set yourself up for success.

Remember, preparation is key. Take the time to understand your options, plan your finances, and work closely with your lender. With the right approach, you’ll be well on your way to turning your homeownership dreams into reality.