Last Updated on September 23, 2026
Securing a cash-out refinance or tapping into your home equity is a powerful way to consolidate debt, fund home improvements, or boost your liquid savings. However, the path from application to closing is paved with potential pitfalls that can “pump the brakes” on even the strongest deals.
In a vital “Home School” session, the experts at loanDepot identified three major financial moves that can unintentionally blow up your mortgage transaction.
Critical Mistakes That Can Derail Your Refinance Deal
- Taking on New Debt: Avoid new debt (like car financing or large credit card purchases) during the loan process, as it increases your debt-to-income (DTI) ratio and can negatively affect your credit score, potentially derailing your approval. loanDepot advises waiting until your loan is officially funded.
- Overlooking Tax Liens and Title Issues: Lenders conduct a title search that can uncover various title issues such as Tax Liens, Mechanic’s Liens, or existing secondary Home Equity Loans. While these are hurdles, loanDepot experts can help you navigate clearing them.
- Career Changes and Quitting Your Job: Mortgage underwriting requires employment stability and a predictable income stream. Transitions like moving from W-2 to Self-Employed (which typically requires two years of earnings history) or from Salary to Commission can create complexity and may cause delays or disqualification.
1. Taking on New Debt
It may seem like a no-brainer, but many homeowners inadvertently jeopardize their approval by making large purchases while their loan is in process.
- The Impact on DTI: Taking on new debt—like financing a car or using a credit card for furniture—increases your debt-to-income (DTI) ratio.
- Credit Score Fluctuations: New inquiries and higher balances can cause a dip in your credit score, potentially moving you into a higher interest rate bracket or disqualifying you from the loan entirely.
The loanDepot Rule: Wait until your loan has officially funded before opening any new lines of credit.
2. Overlooking Tax Liens and Title Issues
“Life happens” between the time you close on your first mortgage and when you decide to refinance. During the title search, lenders often discover new “speed bumps” that have attached themselves to your property.
Common title issues that can stall a deal include:
- Tax Liens: Unpaid local, state, or federal taxes.
- Mechanic’s Liens: Claims from contractors for unpaid work.
- Other Home Equity Loans: Existing secondary liens that haven’t been cleared.
While these can be significant hurdles, they don’t have to be deal-breakers. As the experts at loanDepot say, “Don’t worry, we’re good drivers”—they can help you navigate the steps to clear these items.
3. Career Changes and Quitting Your Job
Employment stability is a cornerstone of mortgage underwriting. While starting a new job is often a positive life event, the timing can be “tricky” during a refinance.
Lenders look for a predictable income stream, and certain transitions can create complexity:
- W-2 to Self-Employed: Moving from a steady salary to owning your own business often requires a longer history of earnings (typically two years) to qualify.
- Salary to Commission: If your new role is nearly all commission-based, lenders may not be able to count that income immediately.
Make Solid Financial Decisions with loanDepot
At the end of the day, these are personal financial decisions that only you can make. However, our goal at “Home School” is to provide the mortgage education necessary to help you understand the long-term consequences of these choices.
Protect Your Home Equity Deal:
- Watch the Lesson: See the full breakdown of these “deal-killers” in the video above
- Consult an Expert: Before you quit your job or make a major purchase, contact a loanDepot mortgage specialist. They have the answers to help ensure your refinance stays on track.
- Stay Informed: Subscribe to the “Home School” series for more expert tips on managing your home’s value and your financial future.
Transcript: 3 Critical Mistakes That Can Derail Your Home Equity or Refinance Deal
In this episode of loanDepot’s “Home School” series, the lesson highlights three major pitfalls that can delay or derail a refinance or cash-out home equity transaction.
3 Things That Can Delay Your Home Equity Deal
- Taking on New Debt: Making large purchases or opening new lines of credit can increase your debt-to-income (DTI) ratio and lower your credit score [00:16]. Both of these factors are critical for qualifying for a refinance or a cash-out loan [00:23].
- Tax Liens and Title Issues: Since the closing of your original mortgage, new issues may have appeared on your home’s title report [00:30]. These “speed bumps” often include tax liens, mechanic’s liens, or even existing home equity loans that must be addressed before the new deal can move forward [00:41].
- Quitting Your Job: Career changes can complicate the approval process [00:48]. For instance, moving from a salaried W-2 position to being self-employed or transitioning to a commission-heavy role can make income verification much more difficult [00:59].
The video concludes by reminding homeowners that while these financial decisions are ultimately theirs to make, understanding the consequences is vital [01:11]. The best course of action is to always ask your lender questions before making any significant changes [01:18].
