10 First-Time Homebuyer Mistakes and How to Avoid Them

Are you buying a home for the first time and stressed out about the entire process? 

Fear not. You are not alone. 

Many first-time homebuyers face challenges that cost them money or lead to a disappointing purchase. The jargon can be difficult to navigate, the financials, and the home buying process as a whole. 

We want to help you avoid these mistakes.

Here are 10 mistakes first-time homebuyers make and how to avoid them:

1. Shopping for Homes Before Understanding What You Can Afford

Many first-time homebuyers get wrapped up in the idea of buying a home and start shopping before understanding their financial situation. This hype sometimes results in first-timers finding a home they love, but they can’t afford it. Then they either find a way to buy that home that they can’t afford or spoil every other home viewing for themselves after they find out what’s in their price range. It taints the home-buying experience. 

Avoid this mistake by calculating what you can afford BEFORE you begin house shopping. Calculate how much you are able to afford using our mortgage rate calculator. 

After you understand your price range, then you can get to shopping!

2. Collecting a Mortgage Rate Quote from One Single Lender

Getting a mortgage is a more tedious job than most homebuyers think. To get a quote from a lender, you have to provide a lot of documentation and take the time to speak to a loan officer. It’s tedious and daunting—so many first-time homebuyers end up settling with the first lender who offers them a quote. 

But you wouldn’t only look at one home before deciding to purchase, right? So why get a quote from only one lender? Getting multiple quotes is the way to go. Freddie Mac says getting a quote from just one additional lender could save you an average of $1,500 over the life of a loan, and a quote from five different lenders, on average, doubles the savings. 

Avoid this mistake by doing your research on lenders and getting multiple quotes. You want to feel confident that you’re getting a good deal and working with a reputable loan officer that fits well with you. 

3. Buying the Most House Your Lender Says You Can Afford

When first-time homebuyers see how much of a loan they’re approved for, sometimes they conclude that it’s the same amount for which they can buy a house. It can seem logical, given that a lender has reviewed their income, assets, and financial situation to come up with the amount of money you were approved for.

However, what the lender says you can afford can be very different from what best fits your lifestyle. A lender doesn’t look at your monthly expenses outside of your debt-to-income ratio. They don’t know how a future monthly mortgage payment will impact the rest of your monthly costs. These include but are not limited to entertainment expenses, child upbringing expenses, cell phone, etc.

So if you end up buying the most house you can afford and borrow the most you’re approved to borrow, you’ll also end up owing more and taking longer to pay it back. That’s money you’re taking away from savings, emergency funds, or retirement funds. 

To avoid this mistake, use the amount of money you’re prequalified for as an upper limit for what you can spend. Then, list out all your monthly expenses—including costs unique to homeowners such as water, garbage pickup, and recycling pickup—and subtract your total expenses from your monthly income. What’s leftover can help you determine what you can comfortably live on, and that can help you also. determine your lower limit. Having this range to work within can help you borrow the right amount of money for your financial situation. 

4. Not Looking Into First-Time Home Buyer Loan Programs & Grants

Many first-time homebuyers either don’t know about the loan programs and grants available to first-time homebuyers or don’t think they qualify. But these programs and grants are designed to make owning a home more possible for American people. 

Avoid missing out by learning about the first-time homebuyer programs and grants offered by your city and state. Look into the federal programs, such as the Good Neighbor Next Door program, Fannie Mae’s HomeReady program, and Freddie Mac’s Home Possible and HomeOne℠ programs. But note that some lenders will not offer to finance for homes purchased through some of these programs.

5. Not Looking Into Non-Conventional Loans

Many first-time homebuyers will go after conventional loans because they’re the most well-known. But what first-timers often forget about are the loan options offered by the Federal Housing Administration, the United States Department of Agriculture, and the Department of Veterans Affairs.

Avoid missing out on the potential benefits of these loans, such as no down payment, no mortgage insurance, lower credit score requirements, and the ability to roll closing costs into the loan. Learn more about these loans and compare them to your research on conventional loans

6. Making a Small Down Payment on the House

Because a down payment is often several thousand dollars due at closing, it can feel like a huge financial hit. So many first-timers opt for a smaller down payment to feel like they’re saving money. But it is a costly mistake because the less money you put down, the more you’ll have to borrow from your lender and pay interest. Any down payment less than 20% will also require private mortgage insurance payment each month.

Avoid paying more later on by aiming to have 20% of your ideal home purchase price saved up before deciding to purchase so you can avoid paying PMI. The more of a down payment you put down now, the more equity you’ll start with and less you’ll have to borrow. 

7. Skipping a Home Inspection 

A home inspection may not be required to get a mortgage, so some people decide not to get one. It’s an added cost, after all. But by skipping out on a home inspection before purchasing a home, a new home buyer may miss out on structural issues that could cause you to pay thousands in repairs—especially if they’re not up to code. 

To avoid the risk that comes with buying a home that hasn’t gone through an inspection, simply get a home inspection done

8. Forgetting About Moving Costs

There’s the price of the home, the down payment, closing costs, and your future mortgage payments. What’s often forgotten, though, by first-timers are the moving costs. You don’t want to be surprised by this cost and have it be an unexpected expense. 

Avoid this mistake by planning for the cost of moving in your budget. Do your research on moving companies and ask for referrals from family and friends. Make sure you look into the cost of renting a truck and shop around. Consider moving on a weekday when there is less demand for moving vehicles.

9. Holding Out for the Perfect Home

Buying a home is a huge decision and commitment. Some first-time homebuyers will resist committing to a home during the shopping process while waiting for the perfect home to come along. But if you wait too long, home prices could rise, you could pay more interest rates, and you’re just prolonging the process. You could also be passing up ideally priced homes in a great location.

Avoid this mistake by making a list of your must-haves in a house. For example:

  • Number of rooms
  • Square footage
  • Location
  • Type of windows
  • Structural health
  • Type of appliances

You can also consider the features that would be nice to have and features that you’re willing to compromise on. It’s not about the perfect home—it’s about being able to create the life you want in a place you’d be happy living in.

10. Applying for Credit Before Closing

When the offer is accepted, it’s an exhilarating moment for first-time homebuyers. It’s huge! And it motivates first-timers to think about furniture, appliances, and decorations to buy. Some of those buyers may decide to apply for new lines of credit before closing on a house. But by doing this, this can affect their chances of getting the loan needed to close on the home. 

Lenders check your credit score during the preapproval process but also just before closing day. If there’s a significant drop in your score before closing, it may disqualify you from the loan. Applying for new credit lines puts hard inquiries on your credit report, lowers your average credit age. If you spend money on the credit card, it increases utilization—all of which negatively affect your score. 

Avoid losing out on your loan before closing by waiting until after you close to open new credit lines. In general, try not to make any significant changes to your finances during the home-buying process.

Get Help Buying Your First Home with CIS Home Loans

First-time home buying is a complex process, and there are many potential missteps that could be made along the way. But for those who are prepared and come equipped with the knowledge to avoid mistakes in the first-time home-buying process, mistakes are much easier to avoid. 

CIS Home Loans experts can help you find the right mortgage for you and help get you started on your home-buying journey. We are a full-service mortgage bank and have served homeowners since 1991. Call us today at 800-844-4845 or visit our contact page to get in touch with our team.