5 mistakes first-time home buyers make
Quick insights
- Common pitfalls for new buyers include rushing or making choices before understanding mortgage terms and long-term costs.
- Skipping mortgage preapproval or failing to compare lenders can limit your loan options and make your offers look weaker to sellers.
- Spending too much, skipping home inspections, or ignoring the neighborhood can cause financial stress or lifestyle regrets after you move in.
Buying your first home is thrilling, but it can be a little nerve-wracking too. One key to ease the process is to learn from mistakes of other first-time homebuyers.
From house hunting to making an offer, others have faced challenges you can skip. This article explains some of the most common first-time homebuyer mistakes and how you could avoid them.
1. Not getting preapproved
Imagine finding the perfect home—your ideal layout, great natural light, cozy living room and in a desired neighborhood. But it’s outside your price point. That’s why mortgage preapproval is important.
A mortgage preapproval involves submitting financial documentation. A lender can evaluate and estimate how much you may qualify to borrow. This helps you set a realistic budget and shows sellers you are a serious buyer. Without a preapproval letter, you may be searching for a house without a financial map. Consider getting preapproved before you start touring homes to help you shop with confidence.
2. Shopping for more home than you can afford
Qualifying for more than you expected can feel exciting. However, preapproval amounts aren’t exactly spending recommendations. Think about it this way: After paying your mortgage, could you still cover groceries, travel, emergencies and unexpected repairs? Your price range for a house should support your lifestyle, not strain it.
Use a mortgage calculator early on to see what your monthly payments might look like. Knowing your limits can save you time looking at houses you know you can afford.
3. Assuming you need 20% down
This is a common myth in homebuying. A 20% down payment is not always required to qualify for a loan. First-time homebuyers can qualify for loans with smaller down payments, thanks to different loan programs and mortgage options. For example:
- Conventional loans with less than 20% down generally require private mortgage insurance (PMI) to protect the lender in case of default. Once your loan-to-value drops to 80%, PMI can typically be canceled.
- FHA loans allow as little as 3.5% down, but borrowers pay mortgage insurance premiums (MIP) for the life of the loan or a set period.
- VA loans allow zero down payment, but there is usually a one-time VA funding fee.
4. Only getting one mortgage rate quote
Interest rates and fees change from one bank to another. Even a tiny difference in your rate can save you thousands of dollars over many years. Shopping around does not mean just picking the lowest number. It means comparing total costs and loan terms so you can make the right choice for your wallet. Comparing loan estimates can lead to you making a more confident and empowering decision.
5. Not working with a real estate agent
Some buyers try to do everything alone. However, a real estate agent can provide valuable insight and support, such as:
- Negotiating purchase terms
- Spotting “red flags” in contracts
- Managing deadlines and your path toward settlement
The homebuying process includes legal documents, timelines and contingencies. Professional guidance could help reduce stress and oversight.
6. Skipping home inspection
A house might look perfect on the outside, but a home inspection looks beneath the surface. Consider including a home inspection contingency in your contract.
Homebuyers might skip inspections to make offers more competitive. However, skipping inspection could mean missing major issues and safety hazards. Even if no major problems are found, attending the inspection can be educational. You may learn how the home works and what maintenance may look like.
7. Not checking your credit report early
Your credit score influences your mortgage approval and interest rate. If you wait until you find a house to check your score, you might find errors that are too late to fix. Instead, review your credit reports a few months before you shop. Look for:
- Incorrect late payments
- Accounts that don’t belong to you
- Inaccurate balances
8. Being careless with your credit during the process
Once you’re under contract on a home, borrowing more money can affect your debt-to-income ratio and credit profile. If you buy a new car or finance a sofa, for instance, your credit score may drop. During the mortgage process, consider keeping finances stable. When in doubt, ask your mortgage lender before making any major financial moves.
9. Draining your savings for the down payment
Putting more money down will reduce your loan amount. However, using all of your savings can create financial strain after closing. The cost of homeownership includes repairs and maintenance, planned and otherwise. Maintaining an emergency fund or cushion could help you feel more secure once you have the keys.
10. Making emotional decisions
It is easy to fall in love with a house; however, making decisions based on emotion can lead to overpaying, waiving important protections or ignoring major problems. Stay focused on your budget and your “must-have” list.
11. Choosing the house over the neighborhood
Buyers have wish lists and must haves. As you focus on homes, you may forget about the neighborhood. While you certainly deserve to find a home that ticks all the boxes, the location should meet your wants and needs. Before you buy, spend time in the area, visiting at different times of the day, picturing your routine there and maybe even talking to residents.
You can repaint walls. You can remodel a kitchen. These are harder to change:
- Long commute times to your job
- Limited essential services (banks, post offices, grocery stores)
- Noise levels
- School district boundaries
12. Overlooking closing costs
First-time homebuyers sometimes focus on the down payment, but that’s not all they need upfront. Closing costs vary by location, loan type and mortgage lender but can be thousands of dollars.
Common closing costs typically include:
- Home appraisal fees: paying a licensed professional to determine the market value of your home
- Title services and title insurance: researching property ownership history and protecting against potential ownership disputes
- Loan origination charges: processing and underwriting your home loan application
- Credit report and verification fees (reviewing your financial profile)
- Prepaid expenses: like homeowner’s insurance premiums or prepaid property taxes collected at closing
- Recording fees: officially registering the property transfer with local authorities
13. Not exploring first-time homebuyer assistance
Depending on where you live, there may be homebuying assistance programs to support you. These programs may be specific to first-time homebuyers and offer:
- Down payment assistance
- Help with closing costs
- Lower interest rates
Take the time to review state-specific first-time homebuyer programs that could expand your buying power and reduce costs.
For example, buyers looking to purchase a home in Chicago may qualify for first-time homebuyer programs and grants in Illinois offered by the Illinois Housing Development Authority. If you’re purchasing a home in Los Angeles, first-time homebuyer programs and grants in California may be available through CalHFA’s programs.
14. Ignoring government-backed loan options
Depending on eligibility, FHA and VA loans may be right for some homebuyers. These loans usually have more flexible requirements for credit score and down payment. Talk to lenders about every option to find the fit for your specific income and location.
In conclusion
Buying a home is a big step, but avoid these common errors to make it a success. Understand your budget, shop for loans or loan terms, and save for various costs.
If you need help, connect with a Home Lending Advisor. You can review loan programs, estimate costs and move forward with greater clarity.
