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13 first-time homebuyer mistakes and how to avoid them

Don’t fall for these common and costly mistakes

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The time has finally come to start shopping for a home and kiss the annoyances of rental life, like rude landlords, goodbye.

While you’re probably eager to see open houses and make an offer, before you get too far, take note of these common first-time homebuyer mistakes so you can avoid them and the stress they bring.

Key insights

  • Before checking home listings, see how much home you can afford by getting preapproved for a loan.
  • While some loan types don’t require a down payment, you will still need to have savings set aside for closing costs.
  • Ultimately, let your finances make the home decisions, not your emotions.

Home shopping before talking to a lender

Talk to a lender first to see how much home you can afford. A lender can give you a clear picture of your financial capacity, including how much you can borrow, what your monthly mortgage payments might be and what loan options you qualify for.

This process, often referred to as preapproval, provides you with a realistic budget, and, by having a preapproval letter in hand, you will look like a serious buyer.

Preapproval vs. pre-qualification

There are two common approaches when it comes to obtaining a preliminary assessment from a lender: pre-qualification and preapproval.

For a pre-qualification, the lender will ask for your income, debts and assets and give you a rough estimate of how much you may be able to borrow. It is quick to get and gives you a ballpark figure, but it is not a guarantee of a loan or loan amount.

A preapproval looks at your finances in more depth, taking bank statements, pay stubs, tax returns and credit scores. While preapproval is not a guaranteed loan either, it does tell sellers that you have already been vetted by a lender. With a preapproval letter, you can make offers on a home. As long as nothing changes with your financial situation, the preapproval loan limits and rate should be close to the actual terms you receive.

» MORE: How to get preapproved for a mortgage

Not using local professionals

When moving to a new area, take time to research real estate agents that successfully sell in that area. You should be able to find reviews of agents and verify how long they have lived there. This is not the time to use your cousin who just passed their real estate exam.

Some cities can have complicated issues that only someone with experience living and selling the area would know about. For example, my friend used an agent from her city to buy in a mountain community an hour away. The agent had over 20 years of experience but had never dealt with homes with personal septic tanks before and ended up missing costly issues before the closing.

Using local and licensed professionals can ensure that area-specific codes and laws are met.

Forgoing neighborhood research

No matter how dreamy the home listing photos look, you need to take some time to investigate the neighborhood.

Check the crime rate and look into the surrounding areas. It is also a good idea to visit the area during after-school hours or on a nice Saturday to get a feel for the community. It is a good sign if neighbors are out and about, engaging in activities or socializing.

Another important aspect to consider is the proximity to amenities and services that are important to you. Check if there are grocery stores, schools, parks, medical facilities and other conveniences within a reasonable distance. Read reviews of the local amenities and restaurants to understand how the community feels about them.

Forgetting future needs

Right now you might want a home with an excellent entertainment setup in the backyard and a bar room with a built-in tap, but will you still want those things in the future?

While you don’t have to consider every possible scenario when buying a home, it is nice to think about what your life might look like a year or five from now. Will you get married or start a family? Will a family member need to move in for additional assistance?

Ask yourself before settling on your home: Can this house grow with us? This doesn’t have to specifically relate to growing your family, either. It can mean there is enough room in the yard to discover a passion for gardening or a separate space to give remote working or starting your own business a try.

Waiting for the perfect home

It is also important to remember there is not a house on the market that will meet all of your wishlist items.

It is wise to keep a list of nonnegotiables you want in a home, like a two-story house, 10-foot ceilings or three bedrooms. These should be features that are too hard or costly to do during a later remodel.

But wishlist items such as granite countertops, desirable wall paint colors or curb appeal can drive up the listing price and might be more cost-effective to do yourself after you move in.

Not comparing lenders

Comparing lenders helps you determine which one will offer you the lowest interest rate and most favorable terms. You can do this by requesting a Loan Estimate from your top two or three lenders. There will be a small fee, usually about $30, to run your credit, but lenders are not allowed to request any other fees during this initial search period.

You don’t have to worry about your credit taking a hit by having your score pulled as long as it is all in the same 45-day window. Inquiries with different lenders will all be lumped together and reflect that you are in the process of buying a home.

Not researching different mortgage options

There are four mortgage loan types to choose from, and each comes with its own credit score and down payment requirements. It might be clear that you don’t qualify for some loan types, like a VA loan for military service members and veterans, but you might be surprised to find that you can qualify for a USDA or FHA loan.

USDA loans are for rural homes and don’t require a down payment, but many up-and-coming cities are still considered rural and can be covered by this type of loan. With a USDA loan, you don’t need to buy a barn or a home with land — you can find modern homes that fall within the population guidelines set by the Department of Agriculture.

Additionally, FHA loans are a great choice for first-time buyers because they offer more flexible credit and down payment requirements. As long as your credit score is 580 or over, you can put a minimum of 3.5% down.

» MORE: Types of mortgage loans

Putting 20% down payment

Putting a 20% down payment is not required to buy a home. It is the requirement to avoid private mortgage insurance (PMI), which is a cost typically added to your monthly mortgage payment. Lenders require it as a layer of protection in case you default on your loan, and it will usually cost between 0.22% and 2.25% of your home cost and credit score.

Many lenders require a minimum of 3% to 10% down, depending on the type of loan. For VA and USDA loans, you are not required to have a down payment.

In some cases, making a lower down payment and paying PMI will put you in a better position financially than paying the full 20%. You don’t want to wipe out all of your savings just for a down payment.

Skipping the home inspection

It can be tempting to want to forgo the home inspection, especially since it can add on another $400 to $500. But even if the home looks immaculate, you should still get a home inspection because it can potentially save you thousands of dollars later on.

“It is supremely important for an inexperienced homebuyer to obtain an inspection on the largest purchase of your life thus far,” said Boris Sanchez, real estate investor and the founder of Sanmore Investments in Houston. “Do not get swayed by the market, realtor or seller. Alternatively, what is found in the inspection report can be used as a renegotiation tool.”

Sanchez lives in Texas, where termites are a huge problem and not easy for an inexperienced homebuyer to spot. “Termites can mean tens of thousands of dollars in repairs if not found and eliminated early.”

What is found in the inspection report can be used as a renegotiation tool.”
— Boris Sanchez, Sanmore Investments

Overlooking hidden costs

The listing price you see a home at is not the only cost you will pay. In fact, the additional fees during the process and after you buy the home can be a bit of a shock. When you go forward with a mortgage loan, you can expect to pay between 2% and 5% in closing costs and additional fees alongside your down payment.

After you own the home, you will need to pay annual property taxes and home insurance premiums, which can vary by state and home. Some homes have a homeowners association (HOA) fee, which covers the maintenance and amenities of the community.

Additionally, you should budget for ongoing maintenance and repairs, such as landscaping, utilities and unforeseen expenses.

Buying more house than you can afford

In a past survey, we found that 69% of the homeowners we polled felt house poor. House poor refers to homeowners having little left for savings after paying the mortgage and related home costs.

The best way to avoid buying more home than you can afford is to not shop for a home at the maximum loan limits your lender sets. If you are buying a home with a partner, ideally, the monthly mortgage bill won’t rely on both of your incomes, just in case something happens.

Using your credit during the process

Once you’ve found your dream home, you might be anxious to start shopping for new furniture, but now is not the time to do so. You need to keep your credit score up throughout the whole process, since the lender will run it one last time before closing. If your credit score changes too drastically, it can change your interest rate or even disqualify you from a loan.

Until you get the keys, avoid adding new debt to your current credit cards, and don’t take out any new lines of financing.

» MORE: What affects your credit score?

Letting your emotions run the show

It is possible to get too invested emotionally in a home before it is officially yours. Even if you love a specific home or neighborhood, don’t let your emotions make the ultimate decision. Avoid going way over budget or ignoring a red flag like a structural issue with the house.

It can be hard to walk away when a home you love doesn’t work out, but your future budget will thank you.

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    How do I know if I am financially ready to buy my first home?

    To determine if you are financially ready to buy your first home, you should assess your financial situation. Consider factors such as your stable income, a good credit score, a manageable debt-to-income ratio and the ability to save for a down payment and pay for ongoing homeownership costs.

    What are the benefits of buying a home versus renting?

    Homeownership provides a sense of stability and the opportunity to build equity over time. New owners also enjoy the freedom to make changes to the property as they see fit — not worrying about what a landlord will say or do.

    How much do I need for a down payment when buying my first home?

    The down payment amount needed for a first home purchase can vary depending on several factors, including the purchase price of the home and the loan type you choose. Even if you use a VA or USDA loan that requires 0% down, you will still need money set aside for closing costs.

    How do I choose the right real estate agent?

    A real estate agent can be an asset or a nightmare during the homebuying process, so you want to research and read reviews on an agent before deciding. Family, friends and colleagues in the area can also give recommendations. You want an agent that is responsive and understands your needs. If at any time you don’t feel comfortable with your agent, fire them and hire a new one.

    Bottom line

    Homebuying can be a roller coaster of an experience, but once you have your keys in hand, it will feel worth it to have a property you can call your own.

    Remember these common first-time homebuying mistakes and know that you have the option to switch real estate agents and lenders if you don’t like working with your first choice.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Consumer Financial Protection Bureau, "Request Loan Estimates from multiple lenders." Accessed June 27, 2023.
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