Mistakes to Avoid as a First-Time Home Buyer  

Are you ready to take the plunge and become a proud first-time home buyer? Congratulations! Buying a house for the first time is an exciting and life-changing milestone. It can also be overwhelming if you need to know what steps to take or what to avoid. The good news is that there are tons of resources out there to help you avoid first-time home buyer mistakes.

We know buying a home is one of the most significant financial decisions you’ll make in your lifetime. Learn from others who have gone before so that you don’t fall into common traps other buyers might have encountered. Here’s our take on common mistakes first-time buyers face when purchasing a home.

Neglecting to Set a Budget

It’s heartbreaking to fall in love with a home beyond what you can afford. This happens when buyers fail to set a clear budget before they start house hunting. 

Determine your financial limits and stick to them. The last thing you want is to move into your “dream home” only to find months down the road, it’s draining your financial resources.  How heartbreaking is it when you can’t make the monthly mortgage payments? Imagine having to sell the home you thought you’d spend years in, or even worse, filing for bankruptcy. That’s a hard road to recover from. 

Need help setting a budget? Gather all your credit accounts and other sources of debt. Track your extra spending, both on essentials like groceries and the fun things– eating out or going to the movies. How much are you actually spending? Are there areas you could cut back?

Tally what you’re spending against your current monthly income. The lower your debt-to-income ratio, the stronger case you’ll make with a mortgage lender and easier it is to pay your debts.

Skipping Pre-Approval

Gaining a mortgage lender’s pre-approval is essential to figuring out your budget and demonstrates to sellers that you are a serious buyer. Skipping this step can lead to wasted time and disappointment.

Note that a pre-qualification letter does NOT guarantee you will secure a mortgage loan for that amount. The pre-approval process is more thorough than the pre-qualification process. With mortgage pre-approval, the lender says, “Based on our surface-level look, we believe we would loan you this amount.” 

To get a pre-approval letter, the mortgage lender will obtain your credit score and credit report and examine your income statements more closely. Before final mortgage approval, the underwriters will request more documentation proving your assets and income and examine your credit history more closely. 

Let’s say the mortgage lender pre-approves you for a $300,000 loan. Does that mean your budget should be $300,000? No, not always! You must remember mortgage insurance premiums, closing costs, moving costs, homeowners insurance, and property taxes. You’ll also need to work your budget to factor in your other lifestyle costs to see what you can reasonably pay each month.

Not Shopping Around for a Home Loan

It’s amazing all the financing options out the on the market. To get the most favorable loan terms, you have to speak with multiple mortgage lenders. However, one of the biggest first-time homebuyer mistakes is stopping with the first lender they speak to. Two mortgage companies offering a 30-year fixed-rate could have different programs and loan terms that add up to thousands in the long-term.

Don’t stop with just conventional financing, either. First-time home buyers have special government-backed loan programs that enable them to gain more favorable terms, have lower credit score requirements, and lower lender fees. There are loans for military service members or those buying in rural areas. You may find adjustable-rate mortgages more favorable to your situation.

Factor in the costs with closing that particular loan. Look at the additional costs, like the lender’s fee, private mortgage insurance, credit check fee, and home appraisal. The bottom line: it pays to shop around for your mortgage options.

Not Researching the Neighborhood

It’s not just about the house; the neighborhood matters, too. Failing to research the area you plan to buy in can lead to unpleasant surprises. Beautiful home, high crime rate? That buying mistake could cost you thousands. A feud between neighbors causing tension in the neighborhood? Living under an airport landing zone? Too strict covenants in a deed-restricted neighborhood? Those all impact your quality of life in the new home.

If you can, drive through at different times of the day to sense its culture and changes. Check the crime rates, school quality, proximity to amenities, and future development plans to make an informed decision. Even if there’s no HOA, the deed may have city-wide restrictions about things like parking boats in the driveway or placing sheds. 

Underestimating Hidden Costs

The costs of homeownership extend beyond the loan repayment. Property taxes, home insurance, maintenance, and utility bills can add up quickly. Not properly considering these ongoing expenses on top of your monthly payment and interest can strain your long-term finances. Get some rough quotes for homeowner’s insurance and utility rates from the local providers.

Plus, maintenance costs crop up all the time. There will always be the small things to keep up with year: the landscaping, home cleaning, and patching nail holes and scuffs. But then unanticipated expenses arise– pests in the attic, water in the basement, termites in the walls…the potential goes on.

In the home tour, consider details like the roof’s age, the condition of the HVAC systems, and overall home age. What problems are cropping up in local homes built in the 1980s, 90s, or beyond? We can’t predict unexpected expenses, but we can do our best to be aware of what may be coming.

“After we moved in, we had water in the basement after a heavy rain,” said Max Monroe, a home buyer in Ohio. “Then, when walking the dog, we noticed many homes had recent trenches dug in their yards. It turns out a lot of the underground gutter pipes were collapsing and needed replacement; it’s a common problem in our 1980s-built development. The [water] backup was the root cause of water in the basement, so we had to address that issue, too.”

Skipping Home Inspections

Don’t make the first-time home buyer mistake of waiving the inspection contingency. This could cost you thousands in the long run. A thorough home inspection can uncover hidden structural issues, like roofing damage, signs of water intrusion, or issues not up to code. Always insist on a professional inspection even if you’re buying “as-is.” 

The home inspection may also point out repairs you can make to preserve or enhance the value of your new home. 

Ignoring Resale Value

While you may be excited about your potential forever home, the average American homeowner has owned their property for 13 years. There’s high variability in when people move from region to region. Life circumstances change, and you may need to sell the home one day. 

The property’s resale value does matter. Buying a home with strong resale potential ensures you can recoup your investment if and when needed. High-demand areas appreciate faster, too. 

It goes back to the neighborhood you choose to buy in. Sure, you may be paying a higher purchase price now for the convenience of living near quality schools or next to a popular entertainment district, but you’ll recoup that cost when you go to sell. Sales prices in high-demand areas have a better chance of appreciating over time.

Conversely, you might be looking to buy a home in an up-and-coming area. Getting in on the ground floor could set the stage for significant appreciation gains when you sell.

And buying in an area where home values and the quality of life are decreasing? You risk not recouping your investment, especially if you don’t plan to be in the home for several years. The general rule of thumb is that it takes 3-5 years to build up enough equity to pay back what you paid for closing costs.

Rushing the Decision

Don’t let the frustration of the process lead to impulsive, emotional decisions. As of 2024, the market has been challenging for most home buyers. Low inventory is keeping prices high, and desirable homes are under contract in days. Meanwhile, mortgage rates are still elevated, and home value keep creeping up. The combination makes buying a home more expensive with each passing day. It’s no wonder many home buyers feel the pressure is on.

And if you’ve extended purchase offers only to lose in a bidding war, it can be even more frustrating to keep losing. The temptation to settle rises. 

However, rushing into a purchase without proper due diligence can lead to buyer’s remorse. It’s okay to be patient with the buying process. This is a major purchase. Take your time, consider your options, and consult with real estate professionals when necessary. 

Focusing Solely on Looks

Curb appeal is important, but don’t become enamored with a house’s appearance without considering practicality. Remember, you’re buying the house, not the furniture. A coat of paint can transform a room but also hide defects and expensive repairs.

Look at the layout, functionality, and potential for customization to suit your needs. Don’t let the current owners’ choice in décor block that too-small kitchen or the funky layout between the living office and kids’ rooms. And sure, some homes may be a “diamond in the rough,” but do you have the budget, time, and skill for a home renovation? 

Pay attention to structural damage, especially those that arise during the home inspection. That small crack in the wall may signify bigger, more significant issues: bowing walls, sinkholes, or settling. Some potential issues can be remedied easily, but others may have a cost to repair outside your budget. 

Overlooking the Fine Print

The purchase contract and associated documents are filled with legal jargon and details you must understand. Failing to review and comprehend these documents can lead to unpleasant surprises. Always seek legal advice if you need clarification on any aspect of the contract. Not reading the fine print could be a costly mistake. 

Not Working With a Real Estate Agent

Don’t face the housing market alone! The homebuying process takes time and multiple steps. Real estate agents have priceless expertise and negotiation skills critical for a first-time home buyer. Our job is to lend our knowledge about the local real estate markets, homes, and businesses to help you make a great purchase. We’ll walk you through each step, from searching for a dream home within your budget to getting to the closing table. Part of our job is to coordinate all the moving pieces, like working with your lender, the home inspector, the real estate attorney, and the title company to get all contingencies cleared by closing day. We’ll let you know when something is an issue and have potential solutions ready. 

In short, choosing not to use a real estate agent to save money might cost you more in the long run.

Make Buying a Home a Great Experience

Say goodbye to unnecessary stress and regret and hello to a bright future in your new home! Your first home is an exciting journey. Avoid these first-time home buyer mistakes and confidently start your way to finding your dream home. Let a local real estate agent help with the home-buying process.  Get more answers to your questions in these additional resources:

5 First-Time Home Buyer Tips

PMI and MIP: What They Are and How They Differ

9 Basic Steps of Buying a Home