12 First-Time Homebuyer Mistakes and How to Avoid Them

First-time homebuyers have been making the same mistakes for decades. A lack of financial awareness and widespread misinformation regarding home purchases make this a tricky experience to navigate, especially for those with limited experience.

Below, we explore several prevalent homebuying mistakes and strategies for avoiding them, so you can break the cycle of misinformation and set yourself up for success in your first home.

How to Avoid 12 Common First-Time Homebuyer Mistakes

Unfortunately, when it comes to securing a loan, a lot of seedy mortgage lenders exist that only prioritize their profit margins. When making a large financial decision like purchasing a home, it’s important to have someone on your side who has your best interests in mind. When determining your mortgage options, try to avoid making the following common mistakes:

1. Renting Longer Than You Need To

Why it’s a mistake: Many would-be homebuyers think a mortgage payment is significantly higher than paying monthly rent. In many cases the opposite is true, even when you factor in property taxes and homeowners insurance. Buying as opposed to renting also builds credit and creates equity, while paying rent does not.

How to avoid it: Know and regularly reassess your budget to understand how much you should be spending on your monthly housing payment. You can also use a rent versus buy calculator to understand the difference between your current rent payment and potential mortgage payment. 

2. Guessing How Much You Can Afford

Why it’s a mistake: Without a realistic estimate of what mortgage amount you qualify for, you may end up falling in love with a house you can’t afford or settling for a house because you think you can’t afford better. 

How to avoid it: Get several opinions from a few different lenders. You can also try our user-guided mortgage calculator to get a general idea of what you can afford based on similar factors.

3. Going with the First Rate Quote You Get

Why it’s a mistake: Different lenders offer different rates, incentives, and loan options. If you don’t shop around, you could end up spending far more than you need to.

How to avoid it: Get a loan estimate from a lender, then be sure to shop around for a second, third, or even fourth opinion. 

4. Assuming Your Credit Report Is Accurate

Why it’s a mistake: Sometimes, you don’t know what you don’t know. Your credit report may have errors that can be corrected or issues that need to be resolved to improve your credit score. 

How to avoid it: Pull your free credit report at least once a year and address any issues as soon as you can. Work with a financial advisor or accountant to figure out ways to raise your credit score if it needs improvement. 

5. Making a Down Payment That’s Too Small

Why it’s a mistake: Several home loan options exist that don’t require putting 20 percent down. However, it’s important to remember that the more you put down, the lower your mortgage payments will be (and the less you will pay in interest over the life of the loan). 

How to avoid it: Decide how much you are comfortable spending on a mortgage each month, and then calculate how much you need to save for a down payment to hit that goal. The conventional 20 percent down payment amount is a strong recommendation, not a rule, so try to get as close to that goal as possible.

6. Putting Down Too Much (i.e., Emptying Your Savings Account)

Why it’s a mistake: Cleaning out your savings account to make a huge down payment might lower your monthly mortgage bill, but it could leave you without resources to cover repairs, renovations, or other necessities for your new home. 

How to avoid it: Weigh up your mortgage options to decide whether a mortgage with less money down makes sense in the long run, if it leaves you with cash reserves. Remember to account for an emergency fund that can cover any unexpected expenses.

7. Missing Out on First-Time Homebuyer Programs

Why it’s a mistake: Many first-time homebuyers don’t have an extensive credit history or a lot of money saved for a down payment. As a result, they mistakenly assume they have to hold off on buying a home.

How to avoid it: There are a lot of specialized programs designed to help first-time homebuyers with less-than-ideal credit profiles purchase a home with less than 20 percent down. Ask your lender about the options that may exist for your situation.

8. Shopping for a House Before Shopping for a Mortgage

Why it’s a mistake: A mortgage lender will be able to give you an estimate of how much you are likely to qualify for. This measure can prevent disappointment if you fall in love with a home you can’t afford, and it can reduce time wasted looking in neighborhoods that are above or below your price range.

How to avoid it: Before you start hitting the open houses or eagerly scrolling Zillow, get pre-qualified for a mortgage. This way, you can make an offer as soon as you find the right house for you. 

9. Overlooking Additional Loan Options

Why it’s a mistake: A conventional 30-year fixed mortgage isn’t the best option for every first-time homebuyer. Everyone’s circumstances are different, and chances are good there’s a mortgage option that works for yours. 

How to avoid it: Work with a trusted mortgage lender to explore all of the different loan options you may qualify for, including VA, FHA, USDA, and ARM loans.

10. Opening a New Line of Credit Before Your Loan Is Finalized

Why it’s a mistake: Your lender will look at your credit and debt-to-income ratio at several points during the loan approval experience. Opening new lines of credit (e.g., credit cards, car loans, and so on) can lower your credit score, which can potentially impact the terms and rates of your mortgage.

How to avoid it: Try to stay away from incurring any new debt while you are waiting for your mortgage to be finalized.

11. Ignoring the Potential Benefits of Discount Points

Why it’s a mistake: Discount points can lower your interest rate and save you money over the life of the loan, but be sure to do your due diligence. 

How to avoid it: Calculate how long it will take to break even (the interest rate savings exceed the upfront cost of buying points). If you plan to live in the home long enough to break even, and you have the cash reserves to do so, discount points are a great option.

12. Underestimating the Cost of Homeownership

Why it’s a mistake: Your mortgage payment is just one of many costs associated with owning a home. Many new homeowners underestimate how much the cost of utilities, insurance, property taxes, repairs, upkeep, and homeowner’s association fees add to their monthly bills. When budgeting for a new home, make sure to account for these expenses.

How to avoid it: Ask the seller to provide the past 12 month’s utility bills. Your realtor should also be able to give you local averages for some of these expenses, including property taxes, homeowners insurance, and HOA fees.

Take on the Homebuying Experience with Confidence

There’s a lot to learn when you’re considering buying your first home. Luckily, you have the knowledge to prepare yourself and know what mistakes to look out for when starting your search. 

If you need more help applying for a home loan, the homebuying specialists at FFB Mortgage Lenders are always available for support. Contact us or apply now so we can get started right away!