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The Big List Of First-Time Home Buyer Mistakes

Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.

Every first-time buyer makes first-time home buyer mistakes. It’s unavoidable.

Beginning at pre-approval and ending at settlement, there so much to learn and so much room for error – from mortgage choices, to touring homes, and making a down payment decision.

Home buyer education helps prepare you for the home-buying journey. However, working with a government-approved curriculum only gets you so far.

To help you, we’ve prepared two lists:

  1. A list of tips for first-time buyers
  2. A list of mistakes that first-time buyers make

This article is a collection of 16 mistakes that first-time buyers make. 

The list of home buyer mistakes is in no particular order, and each can delay or derail your American Dream. Read them over and commit them to memory. You could even bookmark this page.

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21 Common Mistakes First-Time Home Buyers Make (And How To Avoid Them)

1. Don’t Assume You Need A 20 Percent Downpayment

Graphic: The Median Down Payment Of A First-Time Home Buyer

You don’t need to make a 20 percent downpayment to buy your first home. 

In fact, according to the Consumer Financial Protection Bureau, the typical first-time home buyer makes a 6 percent down payment.

Making a 20 percent downpayment may lower your interest rate and monthly payment. Still, it doesn’t make your mortgage easier to approve and doesn’t open more opportunities to purchase.

More than a dozen home loans for first-time buyers allow downpayments of less than 20 percent.

Instead of putting twenty percent down, decide how much down payment you should make based on your household budget. Make your down payment as big or small as is sensible.

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2. Don’t Wait To Start Saving Money

Ben Franklin famously said: “Money makes money. And the money that money makes, makes more money.”

The famous Philadelphian’s quote referenced compounding interest, where interest is paid on money saved, and earned interest then earns additional interest.

It’s a reminder to set savings goals early – especially when buying a home.

Saving early helps buyers raise more cash for a home closing, which can chip away at down payment amounts, government taxes, and closing costs.

A good strategy for home buyers is to create a separate, interest-bearing savings account strictly for home-buying purposes. Make automatic deposits and keep track of balances and savings yields.

The longer you save, the more money you make.

3. Don’t Forget To Save For Closing Costs

Graphic: What Kind Of Closing Costs Should First-Time Home Buyers Expect To See On Their Settlement Statement?

When you buy a home – even if you choose a 100% mortgage such as a USDA loan or VA loan – there are costs you need to save for. Every home purchase comes with closing costs.

Some of the expenses you may pay at closing include the following:

  • Down payment on the home
  • Loan origination fees
  • Title insurance and settlement fees
  • Homeowners insurance/hazard insurance 
  • Private mortgage insurance/mortgage insurance premiums
  • Property taxes
  • Escrow fees
  • Appraisal fees
  • Home inspection fees

You’ll also have costs related to your move-in, including hiring moving trucks, making minor home repairs, and purchasing household appliances.

Even if you’re using a no-closing-cost mortgage, it’s smart to have savings set aside for closing. 

4. Don’t Buy More Home Than You Can Afford

Savvy first-time buyers know that successful home purchases start with a mortgage pre-approval

However, buyers may not know that banks will pre-approve them for extra-large mortgages – even when the buyers don’t request it. 

It can feel exciting to get a large pre-approval. But just because you’re approved to buy a large home doesn’t mean you should. Banks should not set your home-buying budget – your budget should be yours.

A better approach to getting pre-approved is to make a household budget that includes your monthly housing preference. Then, ask your mortgage lender to pre-approve a loan that fits the budget you made. It’s an intelligent way to stay within your budget when you shop for homes.

The best way to buy an affordable home is to set your budget in advance. 

Click here to get pre-approved.

5. Don’t Skip Checking Your Credit Report

Mortgage approvals are rooted in a concept called The 3 Cs of Lending: Capacity, Collateral, and Credit. 

In plain language, the three Cs are:

  1. Capacity: Income and Debts / Ability to repay
  2. Collateral: Loan-to-Value / Down payment amount
  3. Credit: Borrower’s on-time bill payment history

Most home buyers know their income, debts, and down payment situation before buying their first home. Few have seen their credit report.

Your mortgage pre-approval will include a check of your credit score and history. Get a copy of the report and review it. Look for errors and correct them. Find improvement opportunities and take them.

Buyers with higher credit ratings get lower mortgage rates and additional financing options. Maximize your choices as a buyer – get pre-approved early and request a review of your credit.

You can fix your credit score in less than six months.

6. Don’t Only Speak To One Mortgage Lender

According to a study from government mortgage group Freddie Mac, most first-time home buyers never talk to a second mortgage lender as part of their home-buying journey – even though consumers admit that comparison shopping saves money.

So, why don’t consumers comparison shop? The answer is rooted in irrational consumer behaviors, which won economist Richard Thaler a Nobel Prize. 

Some of the Thaler’s reasons for why home buyers don’t comparison shop include:

  • Consumers do too little searching for solutions, in general
  • Consumers are slow to switch away from prior choices
  • Complex alternatives tend to confuse consumers

If you’re a first-time home buyer, then act rationally. Comparison shop your mortgage with multiple mortgage companies and give additional mortgage applications to get your best deal based on price, convenience, and trust.

Click to comparison shop with Homebuyer.com

7. Don’t Ignore First-Time Home Buyer Assistance Programs

Graphic: First-Time Home Buyers Who Seek Educational Assistance Are More Likely To Be Satisfied With Their Home-Buying Journey

Nationwide, more than 800 federal and state housing programs offer down payment assistance and other benefits to first-time home buyers. 

Standard first-time home buyer assistance programs include:

  • Down payment assistance
  • Closing cost assistance
  • Cash grants for buyers
  • Temporary interest rate reductions
  • Interest-free mortgages

Many first-time home buyer programs are reserved for low- and moderate-income households and under-represented socio-economic groups. However, some first-time buyer programs are first-come, first-served, and available to everyone.

When buying your first home, check your local county website for its available housing assistance programs. Visit the U.S. Department of Housing & Urban Development website to find state and local programs for which you might qualify.

Your mortgage lender may also have access to first-time buyer programs.

8. Don’t Confuse Pre-Qualification and Pre-Approval

There’s a big difference between a mortgage pre-qualification and a pre-approval; first-time buyers should know how to tell them apart.

  • Pre-qualification: An ballpark estimate of how much home you can buy, issued by a mortgage company, based on a verbal overview of your finances
  • Pre-approval: An everything-but-the-house mortgage approval issued by a mortgage company based on your verified finances 

The difference between a pre-qualification and a pre-approval is that a pre-qualification is worthless, and a pre-approval has value.

Mortgage pre-approvals set the framework for your upcoming purchase of a home. They use your income, assets, and credit to reliably determine how much home you can afford to buy and what your mortgage interest rate and closing costs will be. 

Pre-qualifications do none of those things. Pre-approvals are the way.

Get pre-approved now.

9. Don’t Hire The First Real Estate Agent You Meet

It’s easier for first-time buyers to search for homes than twenty years ago before Zillow, Redfin, and REALTOR.com put every MLS-listed home on a website. 

In 2023, buyers can find their next home and do in-depth research without the help of a real estate agent. But good real estate agents are helpful.

First-time home buyers need to pay more attention to the importance of a professional who knows their local market well.

A recent report from the National Association of REALTORS® asked home buyers of all ages what they want most from a real estate agent. 

The top 3 answers were, in order:

  1. Help finding the right home to purchase
  2. Help negotiating the terms of the purchase
  3. Help with price negotiations for a home

The answers highlight why buyers should shop for good real estate agents. Identification and negotiation are next-level skills. The difference between the first agent you meet, and the best agent you meet will be the difference between getting the home of your dreams for a great price and overpaying for an also-ran. 

Good real estate agents understand the local housing market. They’ve toured local homes, submitted offers on your street, and negotiated contracts according to local custom.

Ask for a referral to find a great real estate agent in your area.

10. Don’t Treat Your First Home As An Investment

Homeownership builds generational wealth; some of history’s greatest fortunes have come from owning property. 

However, when you’re buying your first home, it’s important to remember that your property is also your residence. You will live in your home. Regardless of how long you live there, it will be the center of your life activities.

The happiest homeowners live in homes that meet financial and emotional needs, which may include the following benefits:

  • Their monthly payment is manageable and low-stress
  • The commute to work is brief and without traffic
  • Their neighborhood is a community with friendly residents
  • The local school system is highly-rated and well-funded
  • There are parks nearby for running, biking, and outdoor activity

A good home will appreciate. A great home you will appreciate. 

Recognize that your first home is unlikely to be your forever home. The typical homeowner moves every 13 years, enough time to build wealth through owning real estate. But, while you own real estate, remember that you’ll also call it home.

Shop for homes that meet your lifestyle.

11. Don’t Skip The Neighborhood Tour

When you buy a new home, it’s not just what you buy – it’s also where you buy.

New homeowners inherit their property line, neighbors, and surrounding community. The best and happiest home buyers get to know more about where they’re planning to live.

It can be hard to meet neighbors during open houses and home tours. Try these other home-buying reconnaissance tactics instead:

  • Drive through the neighborhood during a weekend day and talk to people
  • Drive through the area on a weekday night and talk to people
  • Test-drive your new work commute on a weekday morning
  • Look for community events, including Meet Your Neighbors and block parties
  • Visit the closest grocery store on a Sunday afternoon

The people in your neighborhood shape your homeowner experience. They may also positively affect the value of your home. It’s good to know the area before you buy the home.

12. Don’t Overshare at the Open House

First-time home buyers are inexperienced with the home-buying journey. By definition, they’ve never purchased a home, and many have never negotiated for one. 

An effective way to ruin a home negotiation is to overshare information with the seller or their real estate agent – especially at an open house.

Open houses are events where a property for sale is made available to the home-buying public without an appointment. At an open house, hopeful buyers can walk through a home and its rooms and get a feel for how the space works.

The seller’s real estate agent is usually on-site for an open house to answer questions and offer additional information. 

Common questions that open-house buyers ask include the following:

  • What do you know about this neighborhood?
  • Why is the seller moving?
  • What is the seller’s timeline?
  • Are the home appliances up-to-date?
  • Have there been significant repairs to the home?

Savvy home buyers ask lots of questions and offer little about themselves. Every shared piece of information is an opportunity to weaken your negotiation.

For example, if you fawn over the home’s curb appeal or status as a move-in ready home, you may signal to the seller that you’re willing to overpay. Similarly, if you talk about buying a home with bad credit, the seller may think you need to be qualified. 

You have twice as many ears as mouths. When you attend an open house, remember that proportion. Listen twice as much as you speak.

13. Don’t Skip The Home Inspection

Graphic: A Proper Home Inspection Prior To Purchase Saves First-Time Home Buyers $14,000, On Average, In Repairs To Their New Home

home inspection is an examination of a home, its systems, and appliances performed by a licensed professional. 

Home inspections cost $300-800 to commission, and eighty-six percent of homes require at least one minor or major repair. A good inspection will save you tens of thousands of dollars in home repairs, systems breakdowns, and insurance deductibles.

Home buyers should order a home inspection within seven days of going into contract. Select an experienced home inspector for the type of home you’re buying; one who understands your home’s systems, including heating, cooling, plumbing, and electrical.

A proper home inspection takes up to 6 hours. 

During the home inspection, an inspector often shares maintenance tips and home-keeping advice specific to your home. They may also share the news that your home requires a new roof or its foundation has creaks or leaks.

The inspector’s findings can be the basis for re-negotiating the contract for repairs, discounts, or cancellation. 

For buyers without a home inspection clause: tough luck.

14. Don’t Forget To Check For USDA-Eligible Homes

The U.S. Department of Agriculture (USDA) offers a 100% mortgage for first-time home buyers, commonly called the USDA loan.

The loan’s official name is the Section 502 mortgage, named for the section of the Housing Act of 1949, which outlines the program’s rules and regulations. It’s a mortgage for low-to-moderate-income home buyers to obtain affordable homeownership in non-urban areas.

First-time home buyers should check whether their prospective homes are USDA-eligible because USDA mortgages are often less expensive than other mortgage loan types. 

The benefits of a USDA mortgage include the following:

  • No down payment required to buy a home
  • Lower-than-average mortgage rates
  • Flexible standards for buyers with less-than-perfect credit

USDA mortgages are for primary residences. Loans are available with the 30-year fixed-rate option only.

Click here to search the USDA eligibility map.

15. Don’t Skimp On Your Cash Emergency Fund

Life happens unexpectedly, and homeowners without emergency funds are at higher risk of foreclosure.

Foreclosure is the legal process of a lender repossessing a home after non-payment, then selling it to pay off its mortgage. 

According to real estate data company Attom, foreclosures affect approximately 30,000 homeowners. Foreclosures happen because homeowners stop paying their mortgages.

The three most common reasons for foreclosure are:

  1. Death of a household wage-earner
  2. Illness that prevents a household wage-earner from working and earning income
  3. Divorce, which usually lowers the wages earned within a household

In the above scenarios, households with a savings account tend to emerge from emergencies unscathed. Households with little or no emergency savings often lose their home to foreclosure.

Before you buy a home and maximize your down payment, establish an emergency fund. Have three months of mortgage payments saved, at minimum. If you can set aside six or twelve months of payments, that’s even better.

Then, begin increasing the size of your down payment. 

Life rarely moves in straight lines. Emergency funds protect your life and your home.

16. Don’t Ignore The Rules Of The HOA

Over 74 million Americans live in one of 358,000 Homeowners Associations (HOA) nationwide. If you’re shopping for homes within an HOA, know the rules.

Homeowners Associations are legal entities that govern planned community, condominium, and townhome developments. HOAs enforce rules and regulations for properties and common areas. 

The stated goal of an HOA is to manage shared amenities, support property values, and improve the quality of life for residents of the association. 

Membership in an HOA is mandatory, and homeowners must abide by community rules. Rules vary by community and may include the following:

  • Make regular HOA membership payments, known as HOA dues
  • Maintain the exterior and curb appeal of your home
  • Limit the number of automobiles parked at your home
  • Refrain from displaying signs on your property
  • Maintain regular noise levels

Violating HOA rules can result in fines, penalties, and in extreme cases, legal action.

Before purchasing a property within an HOA-governed community, review the association’s governing structure. Understand its rules, fees, and restrictions to ensure they align with your lifestyle and expectations.

Advice for First-Time Home Buyers: Questions Readers Ask

I’m ready to start looking for houses. What do I do first?

The first step of every successful home search is getting a mortgage pre-approved. A mortgage pre-approval tells you how much home you can purchase and what your payment will be each month.

Getting pre-approved also gives you a Verified Approval Letter, which you can show home sellers to prove you’re a serious buyer. 

Get a mortgage pre-approval here.

Do first-time home buyers have to make a down payment?

No, first-time home buyers do not have to make a down payment. 

Several mortgage programs allow no money down, such as the VA, USDA, and Doctor loans for physicians. 

There are also government assistance programs for first-time buyers, including down payment assistance, forgivable loans, and cash grants for first-time buyers.

Even buyers with poor credit can purchase a home with little or nothing down. 

How much down payment does the typical first-time buyer make?

According to the National Association of REALTORS®, the typical first-time home buyer makes a 6 percent down payment. The median down payment for all home buyers is twelve percent.

How do I prove that I’m a first-time home buyer?

There are several answers to “What is a first-time home buyer.” The most common interpretation used by lenders is that a first-time buyer is any person who has not owned the home they’ve lived in for the last 36 months. 

Most first-time home buyer programs use the 36-month definition.

Graphic: Download The Homebuyer.com Emotional Decisions Infographic
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