14 First Time Home Buyer Tips & Mistakes To Avoid

Purchasing your first home entails a slew of major decisions, and it can be as nerve-wracking as it is exciting. It’s easy to get caught up in the excitement of home hunting and make mistakes that could lead to buyer’s remorse down the road. Below are some First Time Home Buyer Tips to follow.

If you’re a first-time homebuyer or it’s been a long time since you last bought a house, information is power. It’s important to know what to expect and what questions to ask, in addition to knowing where the pitfalls are.

First-time homebuyer mistakes

Here are 14 frequent mistakes made by first-time homebuyers and how to avoid them:

Looking for a home before applying for a mortgage
Talking to only one lender
Buying more house than you can afford
Moving too fast
Draining your savings
Being careless with credit
Fixating on the house over the neighborhood
Making decisions based on emotion
Assuming you need a 20 percent down payment
Waiting for the ‘unicorn’
Overlooking FHA, VA and USDA loans
Miscalculating the hidden costs of homeownership
Not lining up gift money
Not negotiating a homebuyer rebate

1. Looking for a home before applying for a mortgage

Many first-time buyers begin their search for a home before meeting with a mortgage lender. Housing inventory is scarce in today’s market since there is significantly more buyer demand than affordable homes available. This is the most important of First Time Home Buyer Tips.

In such a competitive market, having a mortgage preapproval will help you stand out (or cash in hand). Sellers won’t want to take a chance on someone who isn’t confident they can get a loan, especially if they have alternative bids.

How this affects you: If a property you adore goes on the market, you may find yourself behind the eight ball. You might also look at houses that you can’t afford.

What to do instead: “Get a completely underwritten preapproval before you fall in love with that lovely dream property you’ve been watching,” advises Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, California. Being preapproved communicates that you’re a serious buyer whose credit and finances meet the criteria for obtaining a loan.

2. Talking to only one lender

First-time buyers frequently make the mistake of getting a mortgage from the first (and only) lender or bank they speak with, which is a huge error. You could be leaving thousands of dollars on the table if you don’t compare offers.

How this affects you: The more you browse around, the more you’ll have a better basis for comparison to ensure you’re getting the best offer and lowest prices.

Instead, consider these options: At least three different lenders, as well as a mortgage broker, should be contacted. Rates fluctuate frequently, so try to receive all of your quotations on the same day. Compare interest rates, fees charged by lenders, and loan periods. Customer service and lender responsiveness are other important factors in ensuring a smooth mortgage approval process, especially today that many lenders are swamped with applications. Low interest rates have prompted a surge in mortgage applications, with some lenders falling further behind than others on closings. The mortgage rate tables on Ratemarketplace.com are a wonderful place to start your comparison shopping.

3. Buying more house than you can afford

It’s easy to fall in love with homes that are a little out of your price range, but going overboard is never a good idea. With housing prices on the rise, it’s more crucial than ever to stay to your budget.

What this means for you: Buying a property that you can’t afford puts you at a larger risk of foreclosure if you run into financial difficulties. Other bills and costs will take up less space in your monthly budget. It can also crowd out other options, such as putting money into a retirement account, a child’s education fund, or vacation funds.

Instead, consider the following options: Instead of focusing on the maximum loan amount you qualify for, consider what monthly payment you can afford. Just because you meet the requirements for a $300,000 loan doesn’t guarantee you can afford the monthly payments on top of your other responsibilities. Because each borrower’s situation is unique, consider your entire financial profile when evaluating how much house you can afford. It’s also critical to be entirely honest with your lender or broker about your financial situation. You’ll be the one to repay your loan at the end of the day, and you don’t want to be stuck with a debt you can’t pay.

4. Moving too fast

Buying a home may be a complicated process, especially when it comes to the mortgage procedure. According to Nick Bush, a Realtor with Keller Williams Realty in Rockville, Maryland, rushing the process can cost you money in the long run. This is one of the most important First Time Home Buyer Tips.

“The most common mistake I find is not planning ahead of time for their purchase,” Bush adds.

What this means for you: You may not be able to save enough for a down payment and closing expenses if you rush the process. Speeding to the finish line can also hinder you from fixing issues on your credit record that restrict you from obtaining better loan terms.

Do this instead: Plan out your home-buying schedule at least a year ahead of time. Keep in mind that repairing bad credit and saving enough for a substantial down payment might take months, if not years. Most purchasers can only save $5,000 per year on average toward a home purchase. To put yourself in a better position to get preapproved, work on improving your credit score, paying down debt, and saving more money.

5. Draining your savings

One of the most common first-time homebuyer blunders, according to Ed Conarchy, a mortgage planner and investment consultant with Cherry Creek Mortgage in Gurnee, Illinois, is spending all or most of your savings on the down payment and closing costs.

“Some people scrape together all of their money to make the 20% down payment so they don’t have to pay mortgage insurance,” Conarchy adds. “However, they are picking the wrong poison because they are left with no savings at all.”

How this affects you: When acquiring a traditional mortgage, homebuyers who put down 20% or more don’t have to pay private mortgage insurance (PMI). This normally translates into significant monthly mortgage payment savings, but Conarchy thinks it’s not worth the risk of living on the edge.

Instead, consider these options: Even after you shut, aim to have three to six months’ worth of living expenses in an emergency fund. While paying mortgage insurance isn’t ideal, emptying your emergency or retirement resources to make a hefty down payment is a danger that should be avoided at all costs.

6. Being careless with credit

A mortgage lender will pull your credit record during preapproval and again right before closing to ensure everything is in order. Your lender wants to make sure your financial profile hasn’t changed.

What this means for you: Any new loans or credit card accounts on your credit report could endanger the loan’s ultimate approval. This is a lesson that many buyers, especially first-timers, have to learn the hard way.

Instead, consider the following options: From preapproval to closing, maintain the status quo in your finances. In the months leading up to applying for a mortgage and through closing day, don’t open new credit cards, close current accounts, take out new loans, or make major expenditures on existing credit cards. If you can, reduce your existing credit card balances to less than 30% of your available credit limit, and pay your payments on time and in full every month.

7. Fixating on the house over the neighborhood

Sure, you want a home that fulfills your necessities and fulfills your wish list. According to Alison Bernstein, president and CEO of Suburban Jungle, a real estate strategy consultancy, being choosy about a home’s appearances might be short-sighted if you end yourself in a community you despise.

“Choosing the ideal town for your life and family growth is crucial,” Bernstein explains. “The idea is to find you and your family a spot where the [area’s] culture and beliefs are compatible with your own.” You may always upgrade or downgrade your property, add a third bathroom, or reconstruct your basement.” This is one of the most important First Time Home Buyer Tips.

What this means for you: You can fall in love with your house but despise your area.

Do this instead: Know what your community’s priorities are and complete your study. You may want to look into school ratings, travel duration, and other aspects, depending on your needs or preferences. You may go to the neighborhood at different times to get a feel for the traffic and see whether it’s somewhere you’d like to live in.

8. Making decisions based on emotion

Purchasing a home is a significant life event. It’s a home where you’ll make memories, carve out a personal space, and plant roots. It’s easy to become overly involved and make emotional mistakes. Keep in mind that you’re also making one of the most significant financial expenditures of your life. This is according to Ralph DiBugnara, president of Home Qualified in New York City.

“Because it is taking them longer than usual to discover homes in this strong seller’s market,” DiBugnara says, “a lot of first-time buyers are bidding over what they are comfortable with.”

How this affects you: Emotional decisions may lead to overpaying for a home and going over your budget.

Instead, DiBugnara recommends: Creating a budget and sticking to it. “Don’t get emotionally connected to a house you don’t own.”

9. Assuming you need a 20 percent down payment

The long-held assumption that you must put down 20% is frequently debunked. Today’s buyers don’t want (or can’t afford) to put 20% down to avoid mortgage insurance. The median down payment for first-time buyers is 13% and for repeat buyers is 6%, according to the National Association of Realtors. Check with your real estate agent about individual community requirements and budget appropriately. Some communities, such as co-ops or condos, may still require a bigger down payment.

How this affects you: Postponing your home purchase to save 20% could take years, preventing you from achieving other financial goals such as increasing your retirement savings, building an emergency fund, or paying off high-interest debt.

What you should do instead: Look at other mortgage choices. For a conventional mortgage with PMI, you can put as little as 3% down. While FHA loans only require 3.5 percent down if your credit score is 580 or above. You could even be able to get a mortgage with no money down if you use certain types of loans. Additionally, check with your local or state housing programs to determine whether you qualify for first-time buyer home assistance programs.

10. Waiting for the ‘Perfect House’

Unicorns, both in nature and in real estate, are mythological creatures. This is one of the most important First Time Home Buyer Tips. Looking for the perfect property that ticks all of your boxes can reduce your selections too much. Often leading you to overlook nice, appropriate options in the hope that something better would come along later. According to James D’Astice, a real estate broker with Compass in Chicago, don’t allow wishful thinking sabotage your quest.

How this affects you: Searching for perfection may limit your real estate options or cause you to overpay for a home. It can also extend the time it takes to find a home.

Instead, consider the following options: DiBugnara advises keeping an open mind about what’s on the market and being willing to put in some sweat equity: Some loan options allow you to include the cost of repairs in your monthly payment.

11. Overlooking FHA, VA and USDA loans

With rising home costs, first-time buyers may be pressed for cash. With those with low savings for a down payment or poor credit may struggle to qualify for a standard loan.

How does this affect you? You could feel you don’t have any financing choices and put off looking for a property.

Instead, consider the following options: Consider one of the three government-backed loan programs offered by the Federal Housing Administration (FHA loans), the United States Department of Veterans Affairs (VA loans), or the United States Department of Agriculture (USDA loans) (USDA loans). Here’s a quick rundown of each:

FHA loans only require a 3.5 percent down payment and a minimum credit score of 580. FHA loans can help borrowers who don’t have perfect credit or a lot of money saved bridge the gap. The biggest disadvantage of these loans is the necessary mortgage insurance, which must be paid both annually and at closing.
VA Loans – Active-duty and veteran military service members, as well as their spouses, are eligible for VA loans. These loans do not demand a down payment, although some borrowers must pay a funding fee. VA loans are made available through private lenders and come with a fee cap to keep borrowing expenses down.
USDA loans assist low- and moderate-income borrowers in purchasing homes in rural areas. To qualify, you must buy a property in a USDA-eligible location and meet certain income requirements. For qualifying borrowers with low incomes, some USDA loans may not demand a down payment.

12. Miscalculating the hidden costs of homeownership

Just wait until you add up all of the additional costs of buying a home before you get surprised. These are just a few of the extra costs to consider as a new homeowner.

How this affects you: According to a Bankrate poll, the average homeowner spends $2,000 per year on maintenance. Not having enough cushion in your monthly budget can rapidly put you in the red.

Instead, consider the following options: Taxes, mortgage insurance, and utility expenses can all be calculated with the help of your real estate agent or lender. Compare insurance quotes by shopping around for coverage. Finally, attempt to set aside at least 1% to 3% of the home’s purchase price. This is for repairs and maintenance charges each year. This is important in First Time Home Buyer Tips.

13. Not lining up gift money

Many financing programs allow you to use a down payment gift from a family member, friend, company, or charity. However, not figuring out who will deliver the money and when can sabotage a loan acceptance.

How this affects you: “Before you start looking for a property, make sure the Bank of Mom and Dad is ready, willing, and able to help you with a down payment,” says Dana Scanlon, a Realtor at Keller Williams Capital Properties in Bethesda, Maryland. “If a buyer signs a contract to buy a house with the expectation of receiving gift money, and the gift money never arrives, the buyer may forfeit their earnest money deposit.”

Alternatively: Consider the following options: Have an open and honest conversation with anyone who provides money as a down payment gift regarding how much they’re offering and when you’ll get it. Make a duplicate of the cheque or electronic transfer that demonstrates how and when the funds passed from the gift donor to you. Bank statements and a signed donation letter will be used by lenders to verify this.

14. Not negotiating a homebuyer rebate

Most first-time buyers are unfamiliar with the notion of homebuyer rebates, often known as commission rebates. According to Ben Mizes, founder and CEO of Clever Real Estate in St. Louis, this is a 1% reimbursement from the buyer agent’s commission. This is important in First Time Home Buyer Tips.

What this means for you: Most, but not all, states in the United States offer homebuyer rebates. Alaska, Alabama, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee don’t provide homebuyer refunds.

Instead: Investigate whether your realtor is ready to provide a homebuyer refund at closing if you live in a state that allows it. This can save you $3,000 on a $300,000 property purchase, so it’s worth asking.

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