Mistakes to Avoid When Buying Your First Home

Industry experts weigh in: these homebuying mistakes can cost you.

First time homebuyers with a realtor check out an empty, open floorplan home
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 SDI Productions / Getty Images

The homebuying process can often feel overwhelming—especially if it’s your first time around the block. 

From prepping your finances to finding the right house to securing a mortgage loan, you’ll find many moving parts. Get them right, and that dream home is yours. Stray off course? And it could cost you serious cash or that dream house entirely.

Are you preparing to buy your first home? Here are common homebuying mistakes experts see—and how you can avoid them on your own journey to buying a house.

Attempt to Time the (Rate) Market

Mortgage rates are always in the headlines, and while it can be tempting to hold off in hopes that they’ll dive lower in the coming weeks and months, that's not advised, according to Viral Shah, co-founder and head of financial products at mortgage lender Better.com. 

“The cost of waiting to see if rates go lower can backfire instantly, not making it worth the risk,” Shah says. “The best rule of thumb is that if the numbers make sense, seize the opportunity.”

Have a good handle on your monthly budget (as well as your budget for a down payment and closing costs), and buy a home when the numbers work out in your favor. Get several loan estimates, see what rates and monthly payment you qualify for, and if it falls within your comfort zone, make your move. 

“Don’t try to time the market,” Shah says. “If the numbers make sense to help you achieve your goals, that’s when it makes the most sense.”

Fail to Financially Prep 

Buying a house is a huge financial move requiring careful preparation. Here are a few categories you should consider: 

  • Savings: You’ll need to have your downpayment and closing costs. Closing costs generally clock in at 2% to 5% of the home price, and your minimum down payment can be anywhere from zero (if you qualify for a VA or USDA loan) to as low as 3.5% (for FHA loans).
  • Credit: In addition to saving up cash, you’ll need great credit, which impacts your ability to qualify for mortgage products and better interest rates. A good credit score can mean better interest rates and lower costs, while a low score will mean higher interest rates. If your score is on the low side, work on boosting your score before applying for a mortgage. Keep in mind that the lower your down payment is, the higher your loan balance is and the more your monthly payment will be. You’ll also pay more in interest.
  • Taxes: Finally, make sure you’ve filed your taxes for the previous year. “Your tax returns are used to determine exactly how much you can afford to spend on your mortgage every month,” Shah says. “Because a mortgage commits you to years of payments, we want to make sure your loan is affordable both now and later in life.” This step is particularly important if part of your income comes from commissions or overtime.

Don’t Shop for Your Mortgage

Every mortgage lender offers different loan products, terms, and interest rates. Getting just one mortgage quote (and sticking with it) can cost you—both monthly and in the long run.

Dana Bull, a realtor with Harborside Sotheby’s International Realty in Marblehead, Mass., suggests speaking to a few lenders before partnering with one. “There's a wide spectrum of service levels and programs available,” she says, and you’ll want to ensure you’re getting a solid interest rate. “So many first-time buyers skip this step and miss out on an opportunity to secure the best service, program, and rate.” 

An official loan estimate in hand helps with comparison-shopping. “No matter what a lender says, the only way to validate an offering and compare two options apples-to-apples when rate shopping is to get an official loan estimate,” Shah says. “Unlike a fee sheet or any other document a lender may give, a loan estimate is a standardized document detailing all the costs associated with your mortgage.”

Mortgage shopping might sound like a pain, but your pocketbook might thank you. In fact, getting just a single extra quote could save you $1,500, while getting five quotes could save $3,000.

Fall for the First Home

It’s important to compare options when home-shopping, too. That first house you step inside might seem like a winner, but without anything to compare it to, you’ll never know if it’s truly “the one,” says Phillip Scheinfeld, a real estate broker with Compass in New York City. 

 “Sometimes buyers fall in love with the first home they see and that’s OK,” Scheinfeld says. “However, take the time to see at least a few homes for the sake of comparing and contrasting.” You may find a flaw in your dream home. 

After visiting several homes, return to your chosen house at least a second or third time before making an offer. Try going at different times of the day so you can gauge how the traffic is, what the home looks like at night, and how the neighbors behave on the weekend. 

Forget Pre-Approval 

According to Scheinfeld, most first-time homebuyers skip this step. Preapproval is when a lender evaluates your credit history and financial details and conditionally approves you for a mortgage loan. Once you’re preapproved, you’ll get a preapproval letter detailing the amount you’ll be able to borrow as well as your expected interest rate.

A preapproval is different from a loan estimate, which is a full, detailed breakdown of your loan costs. However, you may receive both documents at the same time, depending on how your lender works

Mortgage lender pre-approval provides several benefits. You’ll learn your likely loan amount and what price range you should be shopping in. It also gives you a competitive edge with sellers that you’re serious about any offers you submit.

 “It is extremely important to get pre-approved,” Scheinfeld says. “In the event you find something you love, you can pounce, since the financing will already be in place. You will save time, money, and a headache.”

Gather a Large Team 

It’s tempting to bring along your dad, your sister, and your best friend when searching for a home. 

Nothing muddies the home buying experience like too many cooks in the kitchen,” Bull says. “Well-intentioned, but opinionated friends and family members can overwhelm and confuse buyers—especially if buyers don't have a solid plan.” Bull recommends being very selective about who you bring into the homebuying process with you, and if you do have outsiders involved in the conversation, discuss what role they’ll play from the start. 

Bull also recommends being choosy about what professionals you let into your homebuying journey—real estate agents, attorneys, and home inspectors included. 

“Buyers should put together an experienced team and properly vet all of the players involved,” Bull says. “After all, these key people are going to be the ones representing, assisting, and advising you throughout the process.”

The Bottom Line

Buying a home the first time can be daunting, but it doesn’t have to be. Just get your financial home in order, shop around, compare your options (home-wise and on your mortgage), and be careful about who you bring into the decision-making process.

Beyond that, always get help if you’re feeling confused.

“Don't be afraid to ask questions even if they seem obvious,” Scheinfeld says. “There are no stupid questions for these kinds of serious investments.”

Article Sources

  1. Consumer Financial Protection Bureau. "Buying a Home? The First Step is to Check Your Credit." Accessed May 7, 2020.