Don't Apply for a Mortgage if These Things Apply to You

by Maurie Backman | Updated July 19, 2021 - First published on April 27, 2021

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There are some scenarios where it pays to put a home loan application on hold.

There are clear benefits to owning a home over renting. Not only do you get an opportunity to own an asset that can grow in value over time, but you also get to call the shots. You don't have to abide by a landlord's rules or stress over whether your lease will be renewed.

But to buy a home, you'll need a mortgage -- unless, of course, you happen to be sitting on a massive heap of cash. And if these situations apply to you, you'd be wise to hold off on submitting that home loan application.

1. You have no idea how much house you can afford

If you take on too expensive a mortgage, you'll risk falling behind not just on your home loan payments, but your other monthly bills. If you don't know how much of a mortgage you can afford, a mortgage calculator can help you break down your monthly costs based on your loan amount and interest rate. But even still, you'll need a detailed budget to figure out what mortgage and monthly payment you can take on, so don't apply for a home loan until you have those figures mapped out.

2. Your credit is really poor

If your credit score is in the dumps, you may not qualify for a mortgage in the first place. And if you are approved, you'll likely get stuck with a higher interest rate that makes your monthly payments more expensive. Before you apply for a mortgage, work on boosting your credit. You should aim to get your score into the mid-600s at a minimum, though for the best rates available, you'll generally need a score in the mid-700s or above. You can raise your credit score by paying all of your bills on time, eliminating some existing credit card debt, and correcting errors on your credit reports.

3. You have a lot of debt already

Having a high debt-to-income ratio (your monthly debt relative to your income) could make it harder to get approved for a home loan. But if you are approved and your debt load is too high, you might fall behind on your various payments. And that could damage your credit and put you at risk of losing your home (if you fall behind on your mortgage itself). A better bet is to pay off some existing debt before applying for a mortgage. That could mean knocking out a personal loan balance or paying off a credit card bill.

4. Your job is in jeopardy

If you have a job with a high enough paycheck to cover the mortgage you're asking for, then you may get approved without a problem. But if you have reason to believe you might lose your job in the near term, then you'd be wise to hold off on that application until you've secured more stable employment. If you lose your job after getting a mortgage and fall behind on your payments, you'll risk losing your home, and that's not a risk worth taking.

You should only get a ‌mortgage‌ ‌when‌ ‌you're‌ ‌in‌ ‌solid‌ ‌financial‌ ‌s‌hape. If any of the above scenarios apply to you, putting your home-buying plans on hold could end up being a very smart move.

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