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10 First-Time Home Buyer Mistakes to Avoid

Updated
Kimberly Rotter, AFC®
Author: Kimberly Rotter, AFC®
Kimberly Rotter, AFC®
Kimberly Rotter, AFC®
Accredited Financial Counselor®

Kimberly is a career writer and editor with more than 30 years' experience. She's a bankruptcy survivor, small business owner, and homeschool parent. In addition to writing for The Motley Fool, she offers content strategy to financial technology startups, owns and manages a 350-writer content agency, and offers pro-bono financial counseling.

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Eric McWhinnie
Fact Checked: Eric McWhinnie
Eric McWhinnie
Eric McWhinnie

Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.

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Buying real estate can be just as stressful as it is fun. If you're a first-time home buyer, it's really hard to know all the right questions to ask. Here are ten mistakes to avoid as you make your first home purchase.

1. Assuming you won't qualify for a mortgage

You don't need a huge salary or a big savings account to get approved for a mortgage. Lenders like borrowers who keep their debt low and pay bills on time.

While it's smart to save some money, you might not need a huge down payment.

2. Assuming your credit is fine

You don't need perfect credit to buy a home. You can even get a mortgage with bad credit, but lower credit scores often mean higher interest rates. This raises the total cost of your home and could make it harder to get the loan you want.

That's why it's important to keep an eye on your credit score. You can check your credit report every week for free from the three major credit bureaus at annualcreditreport.com. If you spot any errors, dispute them online to fix your score.

3. Not saving any money

Even if you qualify for a mortgage with little or no down payment, you'll still need some money in the bank. Some lenders require one month's worth of savings, while others want to see three months.

This money, called cash reserves, can't be used for the down payment or closing costs. You can use it after the loan closes, but it's required to show financial stability.

4. Underestimating homeownership costs

As a homeowner, you're responsible for all expenses related to the house. In addition to your mortgage, you'll need to budget for homeowners insurance and property taxes.

If your down payment is less than 20%, you'll likely pay private mortgage insurance (PMI), which can cost between 0.25% and 2.25% of your loan.

For example, on a $200,000 loan, PMI could add $42 to $375 to your monthly payment. You'll also need to account for HOA fees, utilities, and maintenance costs.

Homeownership is expensive, so plan beyond the mortgage.

5. Shopping with an unrealistic budget

After setting a price range for a home, your lender or real estate agent might suggest you can afford more than you planned. But it's smart to stick to your budget. You’ll want to meet all your financial obligations and still have money to save each month.

Staying within your comfort zone means you'll have extra cash for future upgrades or a remodel. To get started, check out our guide on creating a first-time homeowner's budget.

6. Applying with only one lender

Shopping around with multiple lenders can save you thousands of dollars on your mortgage. Even a small difference in interest rates can add up over the life of your loan. Lenders also charge different fees, like application fees. Applying with multiple lenders lets you compare offers more accurately.

Don't worry about your credit score—it won't be impacted as long as you apply within a short time frame, usually 14 to 45 days, depending on the lender. You'll have to turn down some offers, but it’s the best way to find the right deal. Check out our list of top mortgage lenders for first-time buyers for more details.

7. Confusing prequalification with pre-approval

Pre-approval and prequalification serve different purposes during the home-buying process.

If you're just exploring the idea of buying a home, prequalification gives you an estimate of the loan amount you might qualify for, based on the financial details you provide.

When you're serious about buying and ready to view homes, get pre-approved. The lender will verify your financial information and tell you what loan you qualify for. Before final approval, they will check that your financial situation hasn’t changed, including your credit score, debt, and savings.

8. Assuming you need a big down payment

The biggest hurdle to homeownership for most people is the down payment. Fortunately, there are ways to reduce or eliminate it, such as zero-down mortgages and down payment assistance (DPA).

VA loans, for eligible service members and veterans, and USDA loans, for low- to moderate-income buyers in rural areas, both offer zero down payments. If these options don't apply to you, some lenders and credit unions offer zero-down mortgages as well.

DPA can come as a deferred or forgiven loan or even a grant (free money). To find these programs, search online for options in your city, county, or state.

If zero-down options aren’t available, consider loans with 3% down, or an FHA loan, which requires just 3.5% down.

9. Making big financial changes before closing

Avoid major purchases or job changes during the home-buying process, as they can affect your loan approval.

Such activities suggest a change in your financial risk profile and can lead to delays in closing, changes in the terms of your mortgage, or, in the worst-case scenario, denial of the loan.

A stable financial picture reassures lenders that you are capable of managing long-term financial commitments, such as a mortgage.

10. Letting emotions take over

The home-buying process can be stressful, and unexpected things may happen. It's common for first-time buyers to be outbid by other buyers or investors. You might need to adjust your budget or save more money, and it can be disappointing if you fall in love with a home you don't get.

Take a deep breath and stay patient. Do the math before making any offers, and stick to your financial plan. With persistence, you'll eventually succeed and learn a lot in the process.

FAQs

  • Avoid rushing. A home is a major commitment that you might live with for a long time. Getting the numbers right is important.

    Avoid making any changes to your credit profile. You don't want your credit score to drop. That means you should not make a late payment or increase your debt. Don't close or open any credit card or bank accounts. Don't pay off a collection account unless your mortgage loan officer tells you to do so. Also, it's best not to quit your job, even for a better one, during the home-buying process.

    Avoid viewing homes too early. Make sure your finances and credit are ready and you've got a mortgage pre-approval in hand. Otherwise, you might be wasting your time since today's homes for sale might no longer be on the market when you're ready to make offers.

  • According to the National Association of Realtors, the average down payment in 2022 was 6%.