12 Common First-Time Homebuyer Mistakes (And How to Avoid Them) 12 Common First-Time Homebuyer Mistakes (And How to Avoid Them)
Buying your first home is an exciting milestone, but it can also be overwhelming. With so many steps involved, it’s easy to make mistakes that can cost you time, money, and peace of mind (and ultimately can prevent you from ending up in the right home). To help you navigate the process, we’ve compiled a list of common first-time homebuyer mistakes to avoid—and how to steer clear of them.
1. Shopping For a House Before Getting Pre-Approved
One of the most common mistakes is falling in love with a home before securing financing is a recipe for disappointment. Without a mortgage pre-approval, you risk losing out to other buyers or discovering later on in the buying process that you can’t afford the property.
Pro Tip: Get pre-approved for a mortgage early. A pre-approval letter from a mortgage lender shows sellers you’re a serious buyer and gives you a clear price range, making your offer more competitive in a hot market.
2. Getting Only One Mortgage Rate Quote
Many first-time buyers accept the first rate quote they receive from a mortgage lender. This can be a costly mistake because interest rates and fees vary widely between lenders.
Why it matters: Even a 0.25% difference in interest rate can save you thousands over the life of your loan when adding up your monthly mortgage payments.
Action Step: Take your time and compare at least three mortgage quotes from different lenders. Search for best mortgage rates for first-time homebuyers and negotiate where possible.
3. Not Checking Your Credit Report
When applying for a home loan, your credit score is one of the biggest factors mortgage lenders consider when determining your mortgage rate. Errors on your credit report or a low score can cost you higher interest rates—or even loan denial.
What to do: Pull your credit report from all three major bureaus (Experian, Equifax, TransUnion) and dispute any inaccuracies. Improving your credit score before applying can save you thousands.
4. Not Knowing How Much House You Can Afford
One of the biggest mistakes first-time buyers make is shopping for homes without understanding their budget and ending up with more home than you can afford. Lenders typically recommend that your monthly housing costs (including mortgage, taxes, and insurance) should not exceed 28–30% of your gross monthly income.
Tip: Use our mortgage calculator to estimate your monthly payment. Then get pre-approved before you start house hunting.
5. Not Saving Enough for a Down Payment
While some programs allow low or zero down payments, putting more money down can reduce your monthly payment and eliminate private mortgage insurance (PMI).
Goal: Aim to make a down payment of at least 3%-5%, but if possible, 20% is ideal to avoid PMI. Use down payment savings tips like setting up an automatic savings plan or using windfalls like tax refunds.
6. Not Exploring First-Time Homebuyer Programs
Many states and local governments offer first-time homebuyer programs that provide grants, tax credits, and low-interest loans. Skipping these programs means leaving money on the table.
Tip: Research programs in your state or city. These can help with down payments, closing costs, and even provide educational resources.
7. Ignoring VA, USDA, and FHA Loan Options
If you qualify, government-backed loans can make homeownership more affordable:
- Veterans Administration (VA) Loans: For veterans and active-duty military, often with zero down payment and no PMI.
- United States Department of Agriculture (USDA) Loans: For rural and suburban buyers, also with zero down.
- Federal Housing Administration (FHA) Loans: Require as little as 3.5% down and have flexible credit requirements.
Bottom Line: These programs can significantly reduce your upfront costs and make qualifying easier.
8. Not Knowing Whether to Pay for Mortgage Discount Points
Mortgage points let you pay upfront to lower your interest rate when you buy a house. While this can save money long-term, it’s not always the best choice if you plan to move or refinance soon.
Rule of Thumb: Calculate your break-even point to see if buying points makes sense for your situation. Use a mortgage points calculator to help decide.
9. Draining Your Savings for Your Down Payment
Putting all your cash into a down payment when purchasing a home can leave you financially vulnerable. You’ll still need funds for moving costs, home repairs, and emergencies.
Recommendation: Keep at least 3–6 months of living expenses in an emergency fund after closing. This financial cushion will protect you from unexpected expenses.
10. Opening New Lines of Credit Before Closing
Applying for new credit cards or loans during the mortgage process can lower your credit score and jeopardize your approval.
Advice: Avoid major financial changes until after your home purchase is finalized. Lenders often re-check your credit before closing.
11. Skipping the Home Inspection
Some buyers waive their home inspection to save money or to make their offer more attractive, but this can lead to costly surprises later.
Solution: Always get a professional and thorough home inspection to uncover potential issues before closing. It’s a small investment that can save you thousands.
12. Forgetting About Closing Costs
Closing costs typically range from 2–5% of the home’s purchase price. Failing to budget for these can derail your plans.
Tip: Ask your lender for a Loan Estimate early in the process so you know what to expect. Search for average closing costs for first-time homebuyers in your state for accurate planning.
Final Thoughts
Buying your first home is a big step, but avoiding these common mistakes can make the process smoother and more affordable. Start by understanding your budget, exploring all your financing options, and planning for both upfront and ongoing costs. It's also always worth leaning on your real estate agent to get their perspective on mistakes to avoid when buying your first home. With the right preparation, you’ll be well on your way to owning your dream home.
