Buying a home for the very first time in Colorado can be an exciting yet confusing journey. That is why the tips and strategies you find in this series to not to make Colorado Mortgage Mistakes. My Dirty Little Secrets for Buying a Home, are designed to set you on the right path. It is my unique approach and a “behind the scenes” glimpse at what you should be looking out for and considering when you begin your search for a home in the Centennial State.
Believe it or not, some normal, even harmless, everyday activities could badly damage your chances of purchasing your dream home, even after the offer is already accepted. The following article will focus on the most critical financial and life decisions that you must avoid throughout the mortgage process. In other words, you want to avoid any slip-ups that might give your lender-whether focused on the Front Range or the Mountain Towns-reason to second-guess processing your final mortgage loan approval.
The time between pre-approval and sitting down at the closing table is a very financially delicate one. Your loan isn’t really locked down until the very second you sign the final documents. Lenders are pulling credit and verifying employment right up to the very end, and any big change can send your loan back into underwriting where it can be denied and ultimately kill the whole deal and with it, your earnest money deposit.
These are seven critical things you should never, ever, ever, ever do during the time you are searching for a home and especially after your offer is accepted. Understanding and avoiding these top Colorado Mortgage Mistakes are keys to a smooth closing.
1. Colorado Mortgage Mistakes: NEVER Change Jobs (or Become an Entrepreneur)
Stability is the bedrock of mortgage lending. When seeking final approval from lenders for a home in Denver, Fort Collins, or Colorado Springs, the underwriting process is based heavily on the consistency of your income and employment history. The months leading up to your home purchase are absolutely not the time to seek other employment or start up any new endeavors.
While enhancing your career and moving up is important financially, any change in employment—even if it’s a promotion or a lateral move—triggers a need for the lender to re-verify your income source.
The Risk: A change in pay structure (e.g., moving from salary to commission-only or salary plus bonus), even with a higher potential income, is a major red flag. Lenders typically prefer a two-year history of bonus or commission income before counting it fully. If you switch, your usable income for the debt-to-income ratio (DTI) calculation might plummet, causing you to fail the final underwriting requirements.
The Entrepreneurial Peril: Starting a new business means you become self-employed. For mortgage purposes, self-employed income often requires a full two years of tax returns to be considered stable and usable. Leaving your current W-2 job to pursue entrepreneurial interests will almost certainly disqualify you temporarily.
Your Best Tactic: You must wait until after you’ve moved in, or at least signed the final closing documents, to switch jobs or pursue any new career interests. Remember, lenders don’t want to take risks and are looking to loan money to someone who they know can reliably pay it back. Leaving your current, verified job signals instability.
2. Colorado Mortgage Mistakes: NEVER Pay Off Creditors (Without Checking First)
This sounds counterintuitive, as paying down debt seems like a financially smart thing to do, but it’s one of the most common and damaging Colorado Mortgage Mistakes.
- The Reserve Requirement: Certain loans, especially those with low down payments or those utilizing gift funds, require you to have specific cash reserves (liquid funds remaining in the bank after the down payment and closing costs) to qualify. If you use your cash reserves to suddenly pay off credit card debt or a student loan, you might inadvertently drop your bank balance below the minimum required reserve level.
- The Credit Score Conundrum: While paying off a debt generally boosts your credit score, making a massive lump-sum payment can temporarily lower your score if the credit agency doesn’t report it immediately. More importantly, using large sums of cash from your bank account will trigger the lender’s request for documentation on the source of the funds (where the cash went) and could flag your reserve stability.
- The LSI Keyword ‘Reserves’: Keep your reserves liquid and untouched.
Your Best Tactic: Having debt is not always a bad thing and may not be as big of an obstacle to your owning a home as you think, especially if your debt-to-income ratio (DTI) is already acceptable. NEVER pay off credit cards, student loans, or any other debt you have without consulting your loan officer first. They will tell you the exact debts you should pay down, if any, to meet the loan’s specific DTI requirements, while preserving your necessary cash reserves.
3. Colorado Mortgage Mistakes: NEVER Make Major Purchases
One of the fun things about buying a new home in a place like the beautiful suburbs of Aurora or the bustling areas of Denver is to think about all the new stuff that comes along with it: new furniture, appliances, lawn equipment for that bigger yard. Resist the urge!
Credit inquiries and new debt: Most major purchases today require the opening up of new lines of credit, such as “0% financing for 12 months on that new sectional,” or using credit cards. Opening up new lines of credit results in a hard inquiry on your credit report, which can drop your score. And if you pay for it in cash, financing anything new increases your overall debt, which immediately raises your debt-to-income ratio, or DTI.
The Final Check: Your lender will do a final soft credit pull only days before closing. If they find a new credit line open or a far larger balance on an existing card, they’ll red flag the process until that change is researched and recalculated. If this new debt pushes your DTI past the maximum allowable threshold-e.g., 43 percent for some loan programs-your entire loan approval gets invalidated.
Your Best Strategy: Don’t buy anything major-that new 4×4 truck for the mountain roads, that sleek new furniture, or that high-end washer/dryer set-until you are completely through the mortgage process and the deed has been recorded in your name. That new car-even if you’re trading in your old one-can wait until you have the keys to your new home.
4. Colorado Mortgage Mistakes: NEVER Have Late Payments
You should always make payments on time, whether you are planning to buy a home or not. However, in the months leading up to your home purchase, you must be meticulously careful. This is a foundational element of avoiding Colorado Mortgage Mistakes.
Credit Score Impact: A single delinquent payment, even just 30 days late, on an auto loan, credit cards, or even a small personal loan can immediately decrease FICO scores by 50 to 100 points. Given that your mortgage interest rate is directly linked with your score, a late payment could drastically raise your interest rate, or worse, disqualify you from the loan you were approved for.
Lender Scrutiny: Your lenders review your history of payments as an indication of how reliable you will be. The most recent late payments raise red flags that you are a risk. This would apply to car loans, insurance payments, credit cards, and those things that are often overlooked, such as medical bills in collection or parking tickets.
Your Best Strategy: Set up automatic payments for all monthly debts. Check your credit report-you can pull a free annual report, or ask your loan officer what score they are using-and make sure all accounts reflect current status. Make every payment on or before its due date right up until the day you close.
5. Colorado Mortgage Mistakes: NEVER Accept Out-of-Ordinary Bank Deposits
It’s the lender’s job to ensure that you’re not dependent upon unknown sources of income or sudden loans to qualify. They have to source every dollar used for your down payment and reserves. This is known as the “seasoning” requirement.
Seasoning Rule: Lenders like to verify that most of your down payment cash has sat in your account for at least two months-60 days-thus the term seasoning. Any deposit coming into your account that is not your regular paycheck has to be sourced. A large deposit is generally defined as one which exceeds 25 percent of your gross monthly income.
Debt Suspicion: If your bank statements show $10,000 suddenly coming into your account, then your lender is going to request a letter explaining where that money came from and proving it’s not a loan that needs to be included in your debt-to-income ratio. This looks suspicious and may indicate you are relying on undisclosed family loans or other precarious sources for your down payment.
Gift Funds: If you are receiving a gift from a family member, the gift must be properly documented with a gift letter signed by the donor stating that the funds are a true gift and not a loan that must be repaid. The gift also must be wired or transferred directly to the title company or lender or properly documented if deposited into your account.
Your Best Strategy: Avoid large, random cash deposits. If you are selling an asset, such as stocks or a collectible, or receiving gift funds, first coordinate such moves with your loan officer. They can provide the proper paperwork to ensure the funds are accepted and don’t delay the underwriting process.
6. Colorado Mortgage Mistakes: NEVER Agree to Co-Sign a Loan
Your home buying process is absolutely not the time to co-sign anything! This seemingly harmless act can be catastrophic for your loan approval. Co-signing for a loan or credit card—even if the other party promises to make all the payments introduces new potential debt and risk to your credit profile, which is one of the most serious Colorado Mortgage Mistakes you can make during the underwriting process.
The DTI Nightmare: Even though you are not the one making the payments, and regardless of how much you trust the borrower-a friend buying a motorcycle, a relative buying a car, or even a spouse cosigning for a child’s student loan-cosigning a loan increases your legal liability. The lender must count the full payment of the cosigned loan in the calculation of your debt-to-income (DTI) ratio, unless specific documentation proves the primary borrower has made 12 months of on-time payments.
Default Risk: If the primary borrower defaults, then you run the risk of having your entire loan process in jeopardy. This will drop your FICO rating immediately and drastically, ultimately refusing your mortgage approval.
Your Best Strategy: You should decline all requests to co-sign anything until you are post-closing on your home. Nothing is more important than your own financial security and your ability to obtain your home loan.
7. Colorado Mortgage Mistakes: NEVER Have A Change in Your Assets (Investment Activity)
Remember, you are already making a major investment—buying your new home! This is not the time to be making other large investments, no matter how bullish the stock market may be at the end of 2025. Large investment transfers or new asset purchases are serious Colorado Mortgage Mistakes that can deplete your required cash reserves and jeopardize your loan approval.
Depleting Liquidity: Other investments, such as transferring a large sum of cash into a new brokerage account, buying a rental property in Pueblo, or purchasing a significant number of cryptocurrencies, would deplete your liquid assets-your cash reserves that you need to make lenders comfortable. The lender needs to see those funds in your checking or savings account.
Documentation Headaches: Just like any large deposit, a large withdrawal of money from your account also requires some level of documentation. The lender will ask to show statements showing where and for what reason the money was moved out, and this unnecessarily creates more paperwork and slows down the closing process.
Best Strategy: You are better off waiting until you have officially purchased your new house and the keys are in your hand before making major changes to the assets listed on your original loan application. Your focus needs to be on stability and liquidity.
Conclusion: Securing Your Dream Home by Avoiding Colorado Mortgage Mistakes
Avoid the seven most common Colorado mortgage mistakes, and you have your roadmap to the finish line. In fact, buying a home in Colorado is more marathon-like than sprint-like. From the minute you apply for preapproval until closing day itself, every single financial move you make falls under a microscopic lens.
The lender is not trying to catch you out but rather fulfilling the various regulatory obligations so that you can afford and maintain your mortgage. Thus, it is all about stability, communication, and patience. NEVER make any financial move without first checking with your loan officer. He or she is your guide through this sensitive process.
Because you did the required tasks to stay financially fit-keeping your job, DTI in order, cash reserves intact, and timely payments-you will be sailing through underwriting to get the keys to your new Colorado home.
Next week in My Dirty Little Secrets Series, we’ll be talking about all the Red Flags to watch out for along the way to your dream home. Stay tuned!
