To increase your chances of getting a mortgage, avoid these 5 things and do these 3 things.

Nearly 12% of mortgage loan applicants in 2023 were rejected, as per the Federal Reserve Bank of New York.

Financial inconsistencies are a common reason for rejection, according to Jeff Avevelo, a financial wellness expert at Greenpath.

"A lender may require an explanation for any major changes six months to a year before a mortgage application, according to Avevelo."

While it may be possible to obtain a mortgage with some red flags, it's important to carefully weigh the pros and cons before making any changes, as the lender will inquire about these issues.

CNBC Select provides advice on what to avoid and the necessary steps to take when applying for a mortgage.

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Don't fall behind on your bills

Paying bills on time and in full can positively impact your credit score, which can increase your chances of obtaining a mortgage, according to FICO.

Your FICO score will decrease if you exceed your credit limit and incur interest charges.

Don't open or close any credit cards

If you're approved for a credit card, it can lower the average age of your accounts, which is worth 15% of your FICO score. However, the issuer may run a hard credit check, which can lower your credit score by up to five points.

The percentage of available credit you're using on revolving lines of credit, known as your credit utilization rate (CUR), is another crucial factor in your credit score. If you close a credit card, it could push you over the 30% rate that lenders prefer.

Don’t make any large purchases on credit

Your DTI ratio is calculated by dividing your monthly debt payments by your gross monthly income.

While FICO does not consider income when calculating credit scores, lenders use debt-to-income (DTI) ratio to assess borrowers' ability to make timely payments. A high DTI can negatively impact credit scores. However, lenders prefer a DTI of 36% or lower, which suggests that borrowers have enough income left over to save or invest.

Avoid large deposits or withdrawals

To verify borrowers' financial stability during the mortgage application process, lenders often require bank statements. However, an unusually large deposit could indicate that the balance does not accurately reflect the borrower's financial situation or that they are receiving income from an illegal source, according to Avevelo.

Your lender may be concerned that you're not fully utilizing your available funds for homeownership if you make an unusually large withdrawal.

Ensure that you can justify any recent large deposit or withdrawal made to a lender, as they may inquire about the source and whether it is a one-time occurrence or a recurring event.

“Communication with the lender is key,” Avelvelo said.

Don't change jobs

Avelvelo states that lenders typically require two years of steady employment in the same field, although a lateral move or a higher-paying job in the same industry may not pose a problem. However, a significant period of unemployment, a move to a lower-paying position, or a shift between salaried and self-employment may raise concerns during the mortgage application process.

Verifying income information may be challenging if you undergo a job change during the loan approval process.

Things to do before applying for a mortgage

Before applying for a mortgage, it is important to take certain steps in addition to avoiding red flags.

Check your credit

Capital One CreditWise, a complimentary service, monitors your Transunion and Experian credit reports, provides your VantageScore 3.0 credit score, and offers guidance on improving your score. Eligibility is not limited to Capital One cardholders.

Experian Boost* can increase your credit score by linking on-time payments to your wireless provider, utilities, and other providers to your Experian credit report. On average, Boost users experienced a 13-point increase in their credit score.

Shop around for the best rate

It is advised by Avevelo to obtain quotes from three to five lenders in order to determine the most favorable rate.

Rocket Mortgage, the largest home-loan provider in the U.S., offers FHA loans with a minimum down payment of 3.5% and accepts applicants with credit scores as low as 580. Its customer service has been praised by J.D. Power, which ranked Rocket number one in its 2023 U.S. Mortgage Servicer Satisfaction Study.

If you prefer an in-person banking experience, Chase Bank has over 4,700 branches throughout the U.S. Current Chase customers receive a 0.5% discount on their home loan and the bank will waive up to $1,150 in loan processing fees for customers with a minimum deposit.

Lower-income borrowers can receive up to $7,500 toward closing costs with a Chase DreaMaker loan, requiring only a 3% down payment.

Get preapproved

A preapproval letter indicates your ability to purchase a house within specified loan terms, while also demonstrating your commitment to the seller.

Ally Bank allows borrowers to obtain preapproval online in just three minutes. The bank offers a range of mortgage options, including conventional, jumbo, fixed, and adjustable-rate mortgages, but not government-backed loans or home equity loans. Ally's HomeReady® loan enables qualified borrowers to get approved with only a 3% down payment.

Bottom line

When applying for a mortgage, it is crucial to maintain a stable financial situation, as lenders may raise questions about any changes or deposits, even if they are positive.

Meet our experts

We interviewed financial counselor Jeffrey Avevelo, who specializes in counseling clients about housing, bankruptcy, and debt management, for our story at CNBC Select. Avevelo has relevant training and experience in these areas.

Why trust CNBC Select?

Our goal at CNBC Select is to deliver top-notch service journalism and in-depth consumer advice to our readers, enabling them to make well-informed decisions when it comes to their finances. Each mortgage article we publish is the result of thorough reporting by our team of experienced writers and editors, who possess a wealth of knowledge about mortgage products. At CNBC Select, we take pride in our commitment to journalistic standards and ethics, and we earn a commission from affiliate partners on many offers and links. However, our content is created independently, without any input from our commercial team or external third parties.

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Not all lenders use Experian credit files or scores, and some may not see improved scores or approval odds.