Avoid These Red Flags When Applying for a Mortgage

18 November 2025

Buying a home is one of the biggest financial decisions you'll ever make. But before you get the keys to your dream house, there's one major hurdle to cross—the mortgage approval.

Lenders scrutinize every detail of your financial life before deciding whether to approve your loan. And, believe it or not, there are certain red flags that can make them think twice. Some of these warning signs could even lead to outright denial.

So, if you're planning to apply for a mortgage, you need to be aware of these pitfalls. Let’s walk through the major red flags that could hurt your approval chances—and how to avoid them!

1. Poor Credit Score or Recent Credit Issues

Your credit score is like your financial report card—it tells lenders how responsible you are with credit. If your score is too low, lenders might see you as a risky borrower.

Why Does It Matter?

Mortgage lenders rely on your credit score to determine how likely you are to repay your loan. A low score generally means you have a history of missed payments, late payments, or too much outstanding debt.

How to Avoid This Red Flag

- Check your credit score before applying for a mortgage. If it's below 620, consider improving it first.
- Pay off outstanding debts and make payments on time.
- Avoid opening new credit lines right before applying—doing so can cause temporary dips in your credit score.

2. Changing Jobs Right Before Applying

A steady job means a steady income, and lenders love stability. If you've recently switched jobs—or worse, started a brand-new career—it may raise concerns.

Why Does It Matter?

Lenders want to ensure you have a reliable source of income to make your mortgage payments. If you change jobs frequently, they might wonder whether your income is steady.

How to Avoid This Red Flag

- If possible, hold off on changing jobs until after your mortgage has been approved.
- If you must switch jobs, try to stay within the same industry and maintain consistent (or higher) earnings.

3. Large, Unexplained Bank Deposits

Sudden, unaccounted-for deposits in your bank account can raise red flags for lenders. They might suspect you're borrowing money for the down payment, which could affect your debt-to-income ratio.

Why Does It Matter?

Lenders need to verify that your funds are legally obtained and not another hidden loan that could impact your financial stability.

How to Avoid This Red Flag

- Make sure all deposits are well-documented. If a family member is gifting you money, lenders may require a gift letter.
- Keep a paper trail for any large transactions, so you can explain their source if needed.

4. High Levels of Debt (Debt-to-Income Ratio Too High)

Your debt-to-income ratio (DTI) measures how much of your monthly income goes toward debt payments. The higher it is, the riskier you appear to lenders.

Why Does It Matter?

Most lenders prefer a DTI of 43% or lower. If yours is too high, it might signal that you’re overextended and may struggle with mortgage payments.

How to Avoid This Red Flag

- Pay down outstanding debts before applying for a mortgage.
- Avoid taking on any new debt before or during the application process.
- Consider increasing your income—whether through a side hustle or salary negotiations.

5. Gaps in Employment History

Lenders like consistency. If you’ve had multiple employment gaps or periods without steady income, it could make lenders nervous.

Why Does It Matter?

If you've been out of work for long periods, lenders may question your ability to maintain stable income for future mortgage payments.

How to Avoid This Red Flag

- If you have gaps in employment, be prepared to explain them.
- Keep a consistent job for at least 2 years before applying, if possible.

6. Low Down Payment or No Reserves

A small down payment might seem appealing since it reduces upfront costs, but it can be a red flag to lenders. It signals that you may not have enough financial cushion to handle unexpected expenses.

Why Does It Matter?

The smaller your down payment, the riskier you appear. Plus, lenders prefer borrowers with cash reserves—savings that can cover a few months' worth of mortgage payments in case of emergencies.

How to Avoid This Red Flag

- Aim for at least a 20% down payment to improve approval chances.
- If 20% isn’t feasible, at least have several months’ worth of mortgage payments in savings.

7. Co-Signing Loans for Others

Helping out a friend or family member by co-signing a loan might seem noble, but it can hurt your mortgage application.

Why Does It Matter?

Even if you're not the one making payments on the co-signed loan, lenders count it as part of your debt. This increases your DTI and lowers your borrowing power.

How to Avoid This Red Flag

- Avoid co-signing loans if you plan to apply for a mortgage soon.
- If you've already co-signed, ensure the primary borrower is making timely payments to avoid negative marks on your credit.

8. Missing or Inconsistent Financial Documents

Mortgage applications require a ton of paperwork—W-2s, tax returns, bank statements, and more. Missing or inconsistent documents can delay or even derail the approval process.

Why Does It Matter?

Lenders need these documents to verify your financial history. Missing or conflicting information can cause doubts about your ability to repay the loan.

How to Avoid This Red Flag

- Gather all necessary documents before applying.
- Check for consistency—ensure your income and expenses align across different documents.

9. Applying for New Credit Before or During the Process

Taking out a new car loan or opening a credit card right before or during a mortgage application is a big no-no.

Why Does It Matter?

Applying for new credit can temporarily lower your credit score. Lenders also check your financial activity before closing—new credit inquiries and debt can change your approval status.

How to Avoid This Red Flag

- Wait until after you’ve closed on your home before applying for any new credit.
- Keep your financial profile stable throughout the mortgage process.

10. Incomplete or Inaccurate Application Information

Honesty is key when applying for a mortgage. Providing false or incomplete information—even unintentionally—can lead to immediate disqualification.

Why Does It Matter?

Lenders verify everything you submit. If they find discrepancies, they could either delay your approval or deny your loan altogether.

How to Avoid This Red Flag

- Double-check all details before submitting your application.
- Be honest about your income, debts, and financial situation.

Final Thoughts

Applying for a mortgage can feel overwhelming, but understanding potential red flags puts you in a powerful position!

By keeping your finances in order, maintaining a strong credit score, and avoiding unnecessary risks, you’ll increase your chances of securing that loan—and moving into your dream home without a hitch.

So, before you apply, take a step back and assess your financial health. Avoid these common mortgage pitfalls, and you’ll be well on your way to homeownership!