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Mortgage Shopping Mistakes to Avoid

Published: July 2017
Author: Bank of England Mortgage Staff

Whether you've bought a home before or it's your first time at the rodeo, it's a complicated process involving much more than making an offer and having it accepted. Unlike most transactions where you hand over some cash or swipe your debit card, buying a home involves a lot of different parties and there are a lot of boxes to be checked.

And because it's probably one of the biggest purchases you'll ever make, it's important to know the pitfalls to look out for that can cost you a significant amount if you aren't paying attention. Here are some of the most common mortgage-shopping mistakes that prospective homebuyers make:

FAILING TO CHECK CREDIT BEFORE APPROACHING LENDERS
A surprising number of people only learn about problems in their credit report when they apply for a mortgage. Not only can what you don't know about your credit cost you more on a mortgage, it can also derail the whole process. Plus, you can't really shop for a mortgage and have any idea of what rate you'll be offered if you're in the dark about your credit report or credit score.

Check your credit before you start shopping for a home or a mortgage, so you know where you stand. Being familiar with what's in your credit report gives you the opportunity to address errors and take other steps to improve your credit profile before you approach lenders; you'll qualify for a better rate and won't get any nasty surprises after your offer has been accepted on your dream home. By law, you're entitled to a free credit report from each of the three bureaus (Experian, Equifax and TransUnion) once a year.

APPLYING FOR OTHER CREDIT WHILE APPLYING FOR A MORTGAGE
Each time you apply for credit, the credit check is rated as a "hard inquiry" on your credit, and will cause your credit score to temporarily dip. Closing old accounts can also have a negative impact – even if you aren't using them, closing them reduces the amount of credit you have available, which will affect your credit score. Keep in mind that all credit inquiries for home loans made within a couple of weeks of one another will only count as one inquiry, so if you're shopping around with several lenders, be sure to submit all your applications at around the same time.

Each time you apply for credit, the credit check is rated as a "hard inquiry" on your credit, and will cause your credit score to temporarily dip. Closing old accounts can also have a negative impact – even if you aren't using them, closing them reduces the amount of credit you have available, which will affect your credit score. Keep in mind that all credit inquiries for home loans made within a couple of weeks of one another will only count as one inquiry, so if you're shopping around with several lenders, be sure to submit all your applications at around the same time.

SKIPPING THE PRE-QUALIFICATION PROCESS
Pre-qualification allows you to go through the application process before you start shopping for a home; the advantages include knowing how much you can spend, loan type and an idea of what interest rate you qualify for before you start looking around. In addition, pre-qualification demonstrates to sellers that you're a serious buyer and that you won't be rejected for a mortgage – which means they might be willing to accept a lower offer, knowing that it's a sure thing. Once you do find the home you want and have an accepted offer, all you have to do is provide the lender with the address and details of the offer, and the mortgage process can move forward.

Bank of England Mortgage is always happy to educate homebuyers and answer any question. We'll help you gain an understanding of the mortgage process so you can make the best choices for your home financing goals.