10 First Time Home Buyer Mistakes to Avoid

A chalkboard with a person's hand beginning to write a list of first-time homebuyer mistakes.

Buying your first home can be an overwhelming process. If you’re not prepared, or if you jump in without taking advantage of all of the expert assistance available to you, you could fall into all sorts of traps.

We’re here to offer these 10 first-time homebuyer mistakes to avoid:

1. Shopping For A Home First

When people decide to become homeowners for the first time, they naturally want to start looking at houses. This is a mistake, though; looking for a house before you know your budget or have financing lined up will lead you to disappointment. There are several other steps to take before you should start looking for houses.

We recommend that home buyers (especially first-time home buyers) work with a qualified local real estate agent. They will help you avoid making mistakes when looking for a house, and if you start shopping on your own, you risk getting lined up with a bad deal.

And besides working with a real estate agent, you need to do some financial preparation before you can have a realistic idea of what kind of house you can afford and where you should be looking.

2. Not Assessing Your Finances

Before you can be ready to buy a house, you have to be financially ready for the payments, credit check, and other fees and costs associated with becoming a homeowner.

That means budgeting. Before you enter the homebuying market, you should be living on a budget that is working well for you and allows you to set aside extra funds into an emergency savings fund, and build up a good down payment, closing costs, and money for moving and remodeling, etc.

You don’t need to save a full 20% of the home’s cost for a down payment, but you will need some cash on hand to complete the purchase, and being able to build up those funds is a good test of your readiness to be a homeowner.

3. Neglecting Your Credit Report

Your mortgage lender will check all three of your credit reports, and your credit score (most likely your FICO score). If you don’t know what’s in those reports, you’re not ready to buy a home.

Before you talk to potential lenders, you should pull your own credit reports and check your score. Do this at least a month or more in advance, so you have time to correct any outdated or inaccurate items you may find.

This is especially important these days, where most of us are vulnerable to data breaches—in fact, since the Equifax data breach of 2017 exposed the financial data of 143 million Americans, you simply must assume your data is out there waiting to be exploited. Some kind of credit report review or credit monitoring might be a good idea if you’re planning something as important as buying a home. For assistance on credit, talk to one of our credit counselors today.

4. Doing It Alone

There are multitudes of professionals of different stripes waiting to help you become a homeowner. Real estate agents, of course, are probably essential. An experienced home buyer might try buying a house themselves, but first-time homebuyers should always seek the help of a buyer’s agent.

Besides real estate agents, you’ll want to work with the proper inspectors to make sure the home you’re buying is structurally and mechanically sound. Skipping the necessary inspections is a big first-time homebuyer mistake to avoid.

There are also homebuying counselors standing by to answer questions and provide guidance through every step of the homebuying process. First-time homebuyers often don’t know about all of the resources available to them, so talking to an experienced coach will ensure that you’re fully ready for what’s to come.

5. Talking To A Single Lender

It’s essential to compare loans from multiple lenders when getting a mortgage. You can absolutely take recommendations from your real estate agent or mortgage coach, but they should help you compare offers, not steer you toward a single option for borrowing.

You should start by getting pre-qualified. This isn’t a commitment to borrow from that lender; it’s just a quick evaluation of your finances to give you an idea of how much you can afford to borrow. Getting pre-qualified shouldn’t cost anything, and can be done quickly, either online or over the phone.

You can still shop around for different loans after getting pre-qualified. It’s just a first step to giving you a price range for shopping around for a home and for other loans.

The next step with your lender is to get pre-approved. This involves a full mortgage application and a deeper check into your credit, which means the lender is committed to lending to you. You should have done your full comparison by this point and know which lender you want to go with.

Even so, it is possible to switch lenders even after pre-approval if conditions change—this can complicate the process, and you might not be able to switch if you’ve committed to that lender in writing. Still, it’s not unusual for the market to shift—maybe interest rates dropped a bit and you can get a better rate if you re-apply for a loan. Talk to your mortgage coach if you’re thinking of changing lenders after the homebuying process has begun.

6. Spending Every Dime You Have

You’ve saved up for a home, but that shouldn’t be the only thing you’re saving for. You’ve got to keep your emergency savings fund intact.

Once you become a homeowner, there will be more potential kinds of emergencies you could face that might require an emergency savings fund. Some kinds of home emergencies will need to be addressed immediately, and if you don’t have the funds on hand for an emergency plumber, electrician, etc., then you could end up in serious financial trouble. If you put all of your savings into your house, you’ll be vulnerable if something should go wrong.

Besides emergencies, you’ll need money for all sorts of expenses that will come up during the buying process and in the initial months of homeownership. If you need every dime you’ve saved just to get into a home, you may not be financially ready for homeownership.

7. Missing Out On Special Programs

There are special kinds of loans and programs to help first-time homebuyers, and if you jump straight into the purchase without getting the right assistance, you could miss out.

There may be special loans you can qualify for, like VA, USDA and FHA loans. A mortgage coach will make sure you explore all of these options, along with any local programs that might be available.

These kinds of special loans are designed to help people like you become homeowners, and they’ll involve smaller down payments and better terms than you might get otherwise.

8. Affecting Your Credit During The Mortgage Process

This is a big mistake that mortgage lenders cite and hope not to see. Many buyers think it’s okay to sign up for a new credit card or buy a car in the middle of the homebuying process, but this can completely derail the mortgage loan.

At the closing, the lender will check the buyer’s credit again, and if there’s any new cause for concern there, they will hit the brakes. It might have been 60 days since the initial credit check by then, and there is plenty of potential for things to have changed. If the borrower has added new debt, then the entire mortgage loan has to be re-evaluated.

They will also see if there are any missed payments in the last couple of months that might not have been on the credit report before. These kinds of things can make the loan more expensive even if they don’t get the loan denied entirely.

The bottom line is, don’t do anything during the homebuying process that will affect your credit; make all of your payments on time and wait to get new loans until after you’re comfortable in your new home.

9. Expecting Perfection

If you’re insistent that everything be perfect, you’ll be paralyzed during the buying process. There will always be compromises you have to make, and first-time homebuyers especially have to let go of the idea that they will find the perfect home their first time.

We like to say “your first home doesn’t have to be your dream home.” A starter house is just that—a place to start. After a few years, you’ll have built up some equity, improved your credit, advanced in your career… maybe even grown your family. Your needs will change, and you will certainly be shopping for a second home at some point. That’s all the more reason not to insist that your first home be absolutely perfect.

Some people get so fixated on the home that they overlook the neighborhood it’s in. Trust us, it’s better to have a house that’s “good enough” in a great neighborhood than a great house in a bad neighborhood. Talk to your realtor and lender about the neighborhoods you’re shopping in: their schools, crime, etc., and make an informed decision. Don’t get laser-focused on finding the perfect home when the neighborhood is more important.

10. Not Being Prepared To Be A Homeowner

Being a home buyer is one thing, but being a homeowner is another. There will be ongoing maintenance costs and tasks that you never faced as a renter. We’ve talked about some of the extra financial costs—you’ll need to be ready for emergencies and to pay deposits to set up utility services and the like.

You’ll also need to be ready to move in—whether that involves hiring professional movers or doing the job yourself, it’s a big task. That process will involve repairs, decorating, and generally being handy. If you’ve never handled tools or done this kind of work, you’ll need to get some sound advice. First-time homebuyer education actually includes information about homeownership, not just homebuying.

Starting with first-time homebuyer education or homebuyer counseling is the best way to avoid these mistakes. You’ll get started the right way, knowing what lies in store for you and how to take the right steps at the right time. Getting educated as soon in the homebuying process as possible will save you money and avoid much of the stress of becoming a homeowner.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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