Each year, new home buyers enter the market and fall into the same pitfalls that their parents, siblings, and friends encountered when purchasing their first homes. However, today’s inexperienced buyers have the opportunity to break this cycle. Here are 12 common mistakes made by first-time home buyers, along with alternative approaches to help navigate the process with greater success.

1. Failure to determine your affordable house budget

To avoid wasting time, it’s crucial to determine your affordable house budget. Otherwise, you may find yourself looking at houses beyond your means or visiting properties below your desired price range.

For first-time buyers, the goal is to purchase a house and secure a loan with a monthly payment that brings peace of mind. Sometimes, it’s wise to set realistic expectations and set your price point a bit lower.

To steer clear of this mistake, utilize a mortgage affordability calculator. It will help you ascertain the price range that is within your means, what could be a slight stretch, and what might be considered out of reach.

2. The mistake of only getting one rate quote

When shopping for a mortgage, it’s important to treat it like any other major purchase, such as a car. Comparing offers is crucial, as mortgage interest rates and fees can vary significantly between lenders. Surprisingly, nearly half of borrowers fail to shop around for a loan, potentially missing out on significant savings.

To avoid this common mistake, it’s recommended to apply with multiple mortgage lenders. By comparing offers from at least five lenders, a typical borrower could potentially save up to $430 in interest in just the first year. It’s worth noting that making multiple mortgage applications within a 45-day period will only count as a single credit inquiry, minimizing any negative impact on your credit score.

3. Neglecting to review credit reports and rectify any inaccuracies

When considering your loan approval and interest rate, mortgage lenders carefully review your credit reports. If there are any inaccuracies in your credit report, you might be quoted a higher interest rate than you deserve. That’s why it’s crucial to ensure the accuracy of your credit report.

To avoid this mistake, take advantage of the opportunity to request a free credit report from each of the three main credit bureaus annually. If you come across any errors, make sure to dispute them promptly.

4. Deciding to make a down payment that is smaller than it really should be

You don’t necessarily need to make a 20% down payment to purchase a home. Certain loan programs (refer to item No. 5) allow for zero down or 3.5% down payments. While this can be a good idea, some homeowners do occasionally have regrets.

According to an online survey, 11% of homeowners under the age of 35 agreed with the statement “I should have waited until I had a bigger down payment.” This was one of the most common regrets among millennial homeowners.

To avoid this mistake, determining how much to save is subjective. A larger down payment enables a smaller mortgage, resulting in more affordable monthly house payments. However, taking more time to save may come with downsides. Home prices and mortgage rates have been increasing, potentially making it more challenging to purchase your desired home and causing you to miss out on building home equity as property values rise. The key is to ensure that your down payment allows you to comfortably manage the monthly payments.

Another online survey revealed how long it took millennial homeowners to save for a down payment. Among those who purchased a home within the past five years, the average saving period was 3.75 years. So, if it takes you three or four years to accumulate enough savings, you are in good company.

5. Failing to look into programs for first-time home buyers

As a first-time home buyer, you may not have a significant amount of money saved up for the down payment and closing costs. However, it’s important not to assume that you have to postpone homeownership while saving for a substantial down payment. Fortunately, there are numerous low-down-payment loan programs available, including state programs that provide down payment assistance and competitive mortgage rates specifically tailored for first-time home buyers.

While it’s true that 11% of millennial homeowners express regret for not making a larger down payment, it’s important to note that the vast majority do not share this sentiment.

To avoid this potential mistake, it’s recommended to consult with a mortgage lender who can guide you through the various first-time home buyer options available. Additionally, explore programs specific to your state, as you may qualify for a U.S. Department of Agriculture loan or a Department of Veterans Affairs loan that does not require a down payment. Another option is Federal Housing Administration loans, which have a minimum down payment requirement of 3.5%, and certain conventional loan programs allow down payments as low as 3%.

By being informed and exploring these options, you can make a well-informed decision and embark on your homeownership journey with confidence.

6. Not considering loan programs such as FHA, VA, USDA

Many first-time home buyers are eager or require the option of making small down payments. However, they often lack awareness about government programs that offer convenient pathways to homeownership with minimal or no down payment.

To avoid this common oversight, it is crucial to familiarize oneself with the following loan programs:

  • VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs, designed specifically for military personnel. Notably, VA loans empower eligible home buyers to secure 100% financing without any down payment. Instead of mortgage insurance, borrowers pay a funding fee.
  • USDA loans facilitate the purchase of homes located in areas designated as rural by the U.S. Department of Agriculture. Qualified borrowers can enjoy the benefit of acquiring 100% financing without a down payment. Instead of mortgage insurance, guarantee, and annual fees apply.
  • FHA loans present an opportunity for down payments as low as 3.5%. Moreover, the Federal Housing Administration demonstrates flexibility towards borrowers with less-than-perfect credit. With an FHA loan, mortgage insurance is payable throughout the loan’s duration, even after accumulating more than 20% equity.

7. Uncertain about whether to pay for discount points

Mortgage discount points are upfront fees that you can pay to decrease your mortgage interest rate. Saving on interest rates can accumulate substantial savings throughout your mortgage, and discount points offer a means to achieve those savings if you’re in the right position to acquire them.

Here’s a tip to avoid a common mistake: If making a minimal down payment is a significant achievement for you, then the choice is simple: refrain from purchasing discount points. However, if you have sufficient cash on hand, the value of buying points depends on whether you plan to reside in the home for a period longer than the “break-even period.” This period refers to the time it takes for the upfront cost of the points to be surpassed by the monthly savings resulting from a lower interest rate.

8. Depleting your savings

When purchasing a previously owned home, it’s almost inevitable that unexpected repairs will arise shortly after. Whether it’s replacing a water heater or covering a homeowner’s insurance deductible due to inclement weather, these unforeseen expenses can be challenging for first-time homeowners.

To avoid this mistake, it’s crucial to save adequate funds for a down payment, closing costs, moving expenses, and potential repairs. Lenders can provide estimates for closing costs, and you can gather moving expense estimates by reaching out to different companies. By being financially prepared, you can navigate the challenges of homeownership with greater ease and peace of mind.

9. Submitting a credit application before the completion of the sale

When applying for a mortgage, there is a crucial period between the application and the loan closing. During this time, it is important to avoid making any changes to your credit. It is not recommended to get a new credit card, make large purchases on credit for furniture or appliances, or take out any additional loans before the mortgage is finalized.

Here’s why: The lender’s decision on your mortgage is based on your credit score and debt-to-income ratio, which is the percentage of your income that goes towards monthly debt payments. Applying for new credit can lower your credit score while acquiring new loans or increasing your monthly debt payments will raise your debt-to-income ratio. These factors are unfavorable from the perspective of the mortgage lender.

Approximately a week before the closing, the lender will conduct a final check on your credit. If your credit score has decreased or your debt-to-income ratio has increased, the lender may adjust the interest rate or fees on the mortgage. This could result in a delay in closing or even the cancellation of the mortgage.

To avoid this mistake, it is advisable to wait until after the closing to open new credit accounts or make credit purchases for furniture, appliances, or tools. It is acceptable to have these items selected beforehand but refrain from buying them on credit until you have received the keys to the house.

10. House hunting before securing a mortgage

Many first-time home buyers find it more enjoyable to tour homes than to discuss their finances with a lender. Consequently, they often make the mistake of visiting properties before knowing how much they can borrow. This leads to disappointment when they realize they have been looking in the wrong price range or when they find their dream home but can’t make a competitive offer.

To avoid this costly error, it is crucial to speak with a mortgage professional and get pre-qualified or pre-approved for a home loan before embarking on your home search. Through this process, your income and expenses will be carefully reviewed, giving you a competitive advantage by demonstrating to sellers that you have the financial backing to support your offer.

Remember, taking the time to understand your financial capacity before house hunting will set you on the path to a successful and satisfying home-buying experience.

11. Underestimating the costs involved in being a homeowner

After you buy a home, the monthly bills keep stacking up. This can come as a surprise if you’re not ready. Remember, it is not just your monthly mortgage payment – it is also your utilities, potentially large repair bills, etc.

Renters often pay these kinds of bills, too. But a new home could have higher costs — and it might come with entirely new bills, such as homeowner association fees. Work with a real estate agent who can tell you how much the neighborhood’s property taxes and insurance typically cost. Ask to see the seller’s utility bills for the last 12 months the home was occupied so you have an idea of how much they will cost after you move in.

12. Underestimating the expenses associated with repairs and renovations

First-time home buyers often find themselves taken aback by the unexpectedly high costs of repairs and renovations. There are two common mistakes that buyers make in this regard. Firstly, they rely on a single contractor for a repair estimate, which tends to be unrealistically low. Secondly, their perception is skewed by reality TV shows that portray renovations as faster, cheaper, and easier than they truly are in the real world.

To avoid falling into these traps, it is wise to assume that all repair estimates are on the lower side. Doubling the estimates can provide a more accurate understanding of the actual costs involved. Additionally, it is advisable to seek multiple estimates for significant repairs, such as roof replacements. A reliable real estate agent should be able to provide referrals to contractors who can offer estimates. However, it is also important to seek independent referrals from trusted sources like friends, family, and co-workers. This way, you can compare the estimates received from the recommended contractors with those obtained from your agent.