15 Aug 2025 7 Common Home Loan Application Mistakes – and How To Avoid Them
The Australian property market has long been known for its ups and downs, but one thing remains steady: buying a home is a big financial move.
Across the country, and especially in competitive areas like Melbourne, house prices, interest rates, and lending rules keep changing. That means homebuyers need to be well-prepared, not just with savings, but with a clear understanding of how the home loan process works.
There’s a lot more involved than just picking a property and talking to a bank. One wrong step can delay your approval or limit your options, and that’s why avoiding making a home loan mistake is so important. Whether you’re a first-home buyer or upgrading, knowing what lenders expect and how to present your finances can make all the difference.
Let’s take a closer look at the most common home loan mistakes people make, and how you can avoid falling into the same traps.
One Wrong Move Can Derail Your Home Loan. We Won’t Let That Happen. From pre-approval to settlement, our team knows the red flags lenders watch for and how to avoid them. Work with EverLend Melbourne mortgage brokers who protect your best interest, not the banks. Call us today at 03 7036 3356 to get started.
Mistake #1: Not Checking Your Credit Score
Your credit score gives lenders a snapshot of your financial history. It helps them determine if you’re a safe bet or a potential risk.
Applying without knowing your score means you could be blindsided by a low rating or errors in your credit file that need fixing. And if you’ve got too many recent credit checks or late payments, that can make your application process a whole lot tougher.
Pro Tip:
Request a free copy of your credit report from a trusted credit rating agency like Equifax, Experian, or illion before applying. Fix any errors, pay off debts where possible, and avoid applying for new credit cards or personal loans in the lead-up to your application.
Mistake #2: Applying Without Pre-Approval
Jumping into the property hunt without a home loan pre-approval can leave you guessing your actual borrowing capacity.
Sellers and real estate agents may not take your offer seriously without proof that you can get financing. And worse, you might fall in love with a home you simply can’t afford under your current financial situation.
Pro Tip:
Apply for a pre-approved loan before you start house hunting. It’ll give you a clear budget, help you filter your options, and make the contract of sale process smoother.
Mistake #3: Overestimating What You Can Afford
Many buyers focus on the loan amount they’re approved for without considering hidden costs like stamp duty, legal fees, conveyancing, and moving costs. Add in ongoing expenses like body corporate fees or future repairs, and suddenly the monthly repayments aren’t so manageable. Just because a bank approves a certain amount doesn’t mean it’s a comfortable fit for your cash flow.
Pro Tip:
Use a borrowing power calculator and factor in the total cost of owning a home, not just the loan itself. Be honest about your lifestyle, goals, and future plans, like renovations or having kids.
Mistake #4: Making Big Financial Changes Before Approval
Switching jobs, taking on new debts, or even increasing your credit card limit before your loan is fully approved can mess with your lender’s risk assessment. Even if you have conditional approval, the lender might re-evaluate your situation based on new info, especially during probation periods or if your income sources change.
Pro Tip:
Try to keep your financial history stable until after formal approval. If a life change is unavoidable, consider consulting a trusted mortgage broker early, such as the team at EverLend, and provide them with your situation and supporting documentation.
Mistake #5: Not Comparing Lenders
Every lender has different interest rates, fees, loan features, and approval criteria. Sticking with your everyday bank without looking around might cost you thousands in the long run. Some loans may come with great interest rates but no offset account or redraw facilities, while others may offer flexible loan structures tailored to your needs.
Pro Tip:
Compare not just the interest rate, but also the comparison rate, fees, and loan options. An expert mortgage broker can help you weigh up pros and cons, especially if you’re unsure where to start.
Mistake #6: Missing or Incomplete Documents
Submitting your home loan application with missing paperwork is a sure-fire way to delay things. Common mistakes include not including all pages of your bank statements, missing tax returns, or not disclosing existing debts like HECS debt. Lenders need a full picture to assess your serviceability criteria. So if anything’s unclear, it can slow everything down.
Pro Tip:
Create a checklist that includes ID, employment contracts, recent payslips, savings account statements, details of credit cards and personal loans, and your contract of sale. Double-check every document before submitting.
Mistake #7: Ignoring the Fine Print
Many borrowers focus only on the interest rate, overlooking important details like Lenders Mortgage Insurance, redraw fees, or limitations on offset accounts. Some loan types may include penalties for early repayments or hidden conditions that don’t align with your goals. Not understanding the terms can lead to unexpected costs or limited flexibility down the track.
Pro Tip:
Always read the full loan agreement and ask questions about anything unclear. Understand the difference between advertised rates and the comparison rate, and make sure the loan structure matches your needs both now and in the future.
Each of these home loan mistakes can seem small in the moment, but they can snowball fast. Being aware, asking the right questions, and staying organised can save you a lot of time, stress, and money.
The Easiest Way to Avoid Home Loan Mistakes? Talk to Us First. EverLend’s Melbourne mortgage brokers take the guesswork out of your application. From checking your borrowing capacity to structuring the right loan for your goals, we’ve got you covered. To book your free consultation, call us today at 03 7036 3356.
FAQs
What is a red flag on a loan application?
Red flags include a low credit score, inconsistent income sources, too many recent credit checks, high debt-to-income ratio, or missing documents like tax returns or bank statements. These signs can make lenders question your financial stability.
What are the mistakes on mortgage applications?
Common mistakes include submitting incomplete documents, overestimating your borrowing capacity, applying without pre-approval, ignoring the fine print, or making big financial changes mid-application. Each of these can delay or derail your loan approval.
What are the 5 C’s of mortgage lending?
The 5 C’s are:
- Character (credit history)
- Capacity (ability to repay)
- Capital (savings and assets)
- Collateral (property being purchased)
- Conditions (loan terms and market factors)
What can stop a mortgage from being accepted?
Things like a poor credit report, unstable employment, high credit card limit, errors in paperwork, or a low property valuation can all stop a mortgage application from being approved.
How long does home loan pre-approval last in Australia?
Most home loan pre-approvals are valid for 3 to 6 months, depending on the lender. If your financial situation changes, you may need to reapply.
Does applying for multiple loans hurt my credit score?
Yes. Multiple credit checks in a short time can lower your credit score and make you appear risky to lenders. It’s best to shop around carefully and avoid lodging too many formal applications.
What documents do I need for a home loan application?
You’ll typically need:
- ID (100 points)
- Recent payslips and employment contracts
- 3–6 months of bank statements
- 2 years of tax returns
- Details of debts (e.g. HECS debt, credit cards)
- A signed contract of sale (if applicable)
How can a mortgage broker help you avoid making a home loan mistake?
A mortgage broker can guide you through the application process, help you compare loan options, ensure your documents are complete, and flag any potential application errors. They also work with multiple lenders, which can boost your chances of loan approval.
Wrapping It Up
Avoiding a home loan mistake isn’t just about ticking boxes; it’s about understanding what lenders are really looking for and how your choices affect the outcome.
If you’re planning to purchase a house or property in Melbourne, and you want to be sure you’re making the right mortgage choices, reach out to our team at EverLend today. Based in St Kilda, our mortgage brokers serve clients across Melbourne.
Our expert brokers give you access to a wide range of lenders and loan options, guiding you through the entire loan application process, from start to finish, to help you get it right the first time. Give us a call at 03 7036 3356 to book your free consultation and get started today.