21 common first-time home buyer mistakes and how to avoid them

home buyer seeing a home
pic credit: Unsplash

One of the hardest parts about buying your first home is that you don’t know what you don’t know. And that can be the difference between buying the home of your dreams or getting stuck having to rent again.

This article is about mistakes first-time buyers make. From the basics to the advanced, the “I can’t believe I did those moments”. There are 21 mistakes on this list. Now, my team says I shouldn’t say there are 21 mistakes that first-time buyers make. They tell me 21 is a big number and it could feel overwhelming but I believe in you.

I’m here to encourage you and help you move forward. Because I know you want to buy a home – that’s why you’re here. And, there’s a lot you’re going to get right between now and your move-in day, but there are also some things that you’ll probably not get right. And we know you don’t want to jeopardize your future. So, let’s get into it to make you a better first-time buyer.

1. Skipping your pre-approval

The first mistake: You’re starting looking at homes without getting pre-approved first. Let’s get the big one out of the way first. Never, ever, ever start looking for homes until you’ve been pre-approved. I mean it. No matter how well-qualified you are or even if you think you’re not qualified, don’t make any choices – don’t make any decisions – certainly don’t give up – until you’ve had a pre-approval. Not a pre-qualification – a pre-approval.

A pre-approval is your ticket and the first step forward. It’s a dry run for actual mortgage approval. It uses your actual income, your actual credit, and your actual savings account balance to tell you yes or no – you’ll get your mortgage approved when you go to buy a home. Not getting pre-approved and looking for homes is like shopping at a store without knowing if there’s money in your wallet. Get pre-approved. Do it first.

2. Letting your mortgage lender max your monthly payment

You’re let your lender tell you how much you could afford. There are going to be a few of these first-time buyer mistakes linked to getting pre-approved and this is the second one. It’s up to you – not your lender – to tell you how much home you can afford and what you’re comfortable paying on your home each month.

Your lender treats your approval as a pass-fail. They’ll give you an upper boundary – a limit – and tell you this is how much you can afford. What they’re really saying, though, is “this is the upper limit for how much we’ll approve” and that’s probably not what you want – especially because lenders don’t take your personal spending preferences into consideration.

They just give you the max. The better way is to start with payment in mind – one that you’re comfortable with. Ask your lender to pre-approve you for that amount, and to tell you how much home you can buy for that monthly payment. That’s the right way to pre-approve yourself and commit to staying within budget.

3. Letting your pre-approval expire

Don’t let your mortgage pre-approval expire out of neglect. Pre-approvals use your income, credit score, savings account, and current mortgage rates to tell you how much house you can afford to buy. Those four things aren’t static, though. Your credit score changes. Your income changes. Your money is in the bank. It all changes. All the time.

And so your pre-approval, when it’s issued, comes with language that says your it doesn’t last forever and that it requires a renewal every 3 months, and I’ll add – also when mortgage rates change by a half-point or more because that affects payments – down and up.

Keeping up on your pre-approval renewed at least quarterly makes sure you’ll always shop in range and never surprised by a change in your personal circumstance, so when you find your dream home, you’re ready to buy it and know you’ll be approved for it.

Now, clearly, pre-approvals are a big deal and we advocate for them. If you’re still unconvinced and want to wing it, hey, who am I to judge? But I’m going to ask that before you skip what pretty much everyone will tell you is a big deal, getting pre-approved. We believe in pre-approvals. You should too.

4. Hiding important Information from your lender

You’re hiding information from people who need it. When you’re pre-approved, your lender will ask about your job, your sources of income, and your residential history. They’ll ask about your citizenship, whether you’re making child support payments or payments to maintenance or alimony. They’ll ask whether you’re party to a lawsuit.

And a whole host of other questions that you may not have expected to hear. Irrespective of what you think about those questions, answer them honestly. The info you provide fills in the gaps for your mortgage pre-approvals and everything is used to help get you in your home as best as possible because remember – lenders lend.

That’s what they do. They want to help you buy. But they don’t want to be lied to. Because everything you’re asked will be verified later, independently. And if it’s found that you fibbed, omitted, or willingly withheld key information, your loan is as good as dead. And any good faith money you put on deposit is probably gone too. Be open, be truthful, and be upfront. Everyone wants to help.

5. Leaving too little time to improve your credit score

The Fifth Mistake: You’re not leaving yourself time to eke out improvements to your credit score. Okay when you buy a home, you’re rarely doing it overnight. It starts at night, maybe laying in bed, scrolling homes on an app. Flicking through and making the choice that “I will not renew my lease.” That “I will be a homeowner.”

And weeks pass or months and you’re still scrolling homes but now you’ve gone and started searching Google: “How much house can I afford?” “What’s the smallest downpayment I can make?” “What’s a condo?” And those searches evolve and eventually – you hear enough times about getting pre-approved – that you decide hey I better get pre-approved.

And when that happens, your search becomes real. You realize “Yes, I can buy this home.” “I can stop renting.” And your search picks up speed and now you’re under contract and you might wish – just wish – that your credit score was just a little bit higher.

Because a higher credit score lowers your interest rate and gives you better payment and saves you money except now, it’s late in your journey and you’re closing in a month and you can’t do anything about your credit. It is what is it. Except it doesn’t have to be. Get your credit rating early – in the beginning.

When you’re still at your start. Do it now – even if you’re not buying for a year – get a pre-approval, see what’s up with your credit, and make big or small changes as you can to help yourself out.

white and grey wooden house in a green grass
pic credit: Unsplash

6. Looking for the perfect house

Okay, so home search apps give you dozens of ways to filter your search. And you’re out there looking for the right number of bedrooms, the right number of bathrooms, the right square footage, the right street, the right appliances, the right photos, the right roof, the right yard, the right neighbors, the right fixtures, the right price.

That house may be out there but more likely, there’s a version of that house and that’s what you are in search of. Because there is no perfect home. And buying a home requires compromise. There are six million home buyers each year and they’ll tell you. The perfect home does not exist but there are plenty of homes that still work great. Find that home.

7. Falling in love with this home

Yes, we know. You found the one. It’s gorgeous. It has everything you want. And now you’re attached. And that’s going to be a problem because it’s unlikely that you’ll win your bid. You’re not the only one making one.

And thinking you’ll never find another home like this – that you have to get this home or else you’ll never be as happy, that will make you do things you will regret later. There are other homes. And if you don’t get this one, you’ll get the next one. Move on.

8. Changing Job to a new pay

The eighth mistake buyers make: You’re changing jobs for more pay but your new pay is overtime and commissions. Earning money is good. Income is good. Income pays the bills and paying the bills is cool. But if you’re buying your first home within the next year, before you take a new job, think like a lender.

Ask yourself: Is my income guaranteed? If the income is promised and it’s in your contract, you can claim it for your mortgage. Great. If it’s not promised, if it’s not guaranteed – if it’s based on how many hours you work or how many sales you make, your lender will not accept your paystubs as proof you earned that money.

Not until there’s at least one year’s worth of income to average out and assess whether your income is consistent. It’s fine to change jobs but if you’re in doubt, get a pre-approval today and ask about your options.

9. Waiting to save 20% to buy a home

You’re not buying until you make a twenty percent downpayment. Nobody ever said, “I can’t wait to make a huge downpayment on a home”. That’s not how buyers look at things. Buyers say “I can’t wait to own my own home”. So do that. Your goal is homeownership. To stop renting. And, in the worst case, you don’t need any more than 3.5 percent for your downpayment. And depending on where you buy, or what you do for a living, that amount can drop to three percent.

10. Avoiding mortgage insurance

You’re thinking you want to make a big downpayment because mortgage insurance is a waste of money. Look, mortgage insurance is not a waste of money and it’s nothing for you to avoid. Mortgage insurance is a cost for the privilege of putting down less than twenty percent down.

It’s a tool that makes homeownership possible faster, and lets you buy a home now. Which is your goal. And not even a low downpayment mortgage even requires mortgage insurance. Don’t run from mortgage insurance. Mortgage insurance does a lot of good.

11. Cashing out all your savings

You’re cashing out your life savings to buy your dream house. Don’t do this. Don’t put everything you have into a downpayment. It’s not the smart move you think it is. Life is uncertain. Having cash available to you in the bank, or anywhere – keeps you safe. When you put all your money into a down payment, that money is unrecoverable to you.

To get it back, you’d have to sell your home or refinance it – and those are two events that take time. And it’s not like you get a better rate for putting 20% down. You usually don’t. Stay liquid.

12. Rushing to buy a home

You’re feeling rushed. Buying a home doesn’t happen overnight – even when you need it to. And a seller that rushes buyers more quickly is trying to force that buyer to make a mistake. You have time to buy a home. Nothing has to happen right now. If the seller’s expressing urgency, that’s on the seller.

Take your time, slow down, and make your best choices. It’s okay to miss this home – there will be another.

13. Getting advice from everyone

You’re getting advice from people who don’t know what they don’t know. It’s great to talk to friends and family about buying a home, or anybody who saddles up next to you at work or wherever else, but talking to people about buying a home is not the way forward.

Your friends and family – they might know some things about real estate and mortgage and buying a house but I can promise you that they don’t know a lot. And I can say this with certainty because I’ve talked to so many home buyers in my life and even the ones who knew the most still didn’t know all that much because they didn’t know what they didn’t know.

If you want to learn about bidding on a home, ask a good real estate agent for advice. They see dozens of transactions per week and can tell you what’s trending – in your neighborhood, which matters. If you want to learn about getting the lowest mortgage rate, ask a mortgage lender for advice.

They’ll tell you what you need to know and most will give you a referral when they know you need a specialist. Rely on professionals – on people who do this all day, every day. Your aunt, your neighbor, your co-worker – they’re all great people but probably not the ones to tell you how to buy a home.

14. Planning two homes ahead

You’re already planning to sell and you haven’t even bought. It’s common for a first-time buyer to think two homes ahead. “I’m going to buy this house today, live it in, and then rent it out for income when I buy my next home.” It’s a fine plan and lots of people pull that off, but many more don’t.

Because life is unpredictable and the plan you’re making for two homes ahead makes some heavy assumptions. That your home will rise in value. That you can find a renter for it. That the rent will cover your mortgage and taxes and insurance. That your tax bills won’t be excessive. That your home won’t need repairs. That you won’t need that home’s equity to make a downpayment on your next place.

If the future turns out the way you want, great. But you haven’t even bought your first home. You shouldn’t be planning for your second.

brown and white concrete house near green trees under blue sky
pic credit: Unsplash

15. Using the seller’s real estate agent

When you buy a home, get a representation of your own. Do not use the seller’s real estate agent and do not use the builder’s. Those agents don’t serve you first – they serve the seller or the builder/It’s right there in their contract – the duty of those agents is to get the maximum dollar possible for the seller of the home. Therefore, that agent can’t represent your best interests, too. It’s a conflict.

So get your own agent and if you don’t have one, ask for a recommendation – from anyone. Because letting the seller’s real estate agent represent you is an easy way to ensure you overpay.

16. Waiving your backout clauses as a buyer

When you bid to buy a home, in your purchase contract, you as the buyer are given rights and protections, called contingency clauses. If this happens, then that happens. And there are dozens of contingency clauses you put in a contract but four important ones you should never delete out: the appraisal contingency, the financing contingency, the home inspection contingency, and also the right to a final walk-through.

Each of these protections is for you – to make sure that your seller is honoring its commitment and to make sure you’re not buying a lemon. Because that happens. Your clauses are your protection. Keep them in your contract.

17. Not checking for home affordability mortgages

You’re not checking whether you’re eligible for home affordable mortgages When you’re buying a home, always check whether you can use a home affordable mortgage to finance your purchase. Two popular affordable programs – HomeReady and HomePossible – they give lower rates, they raise how much home you can afford to buy, and they reduce the fees for closing.

And they’re just standard mortgage loans – 30-year fixed, Fannie Mae and Freddie Mac – just tweaked to make payments more affordable. Affordable loans can be used when you’re buying in low- and moderate-income and you don’t always have to be a low- or moderate-income buyer. So check out your options. They’re great programs.

18. Forgetting about insurance

This one’s a four-parter because when you buy a home, there are four types of insurance you should be buying. One is homeowners insurance. You need this. Your lender won’t lend without it. So, as you shop for homeowners insurance, make it multi-line, maybe get a discount, and buy two other types of insurance.

The first is personal liability insurance, sometimes called Umbrella Insurance. This protects you from other people getting hurt in your home or property and making a big claim. Absolutely necessary – especially if you have a pet.

And the second is auto insurance. Because you’re moving to a new address, in a new ZIP code, with a new commute and maybe a new parking situation. All of this affects what you pay in auto insurance so while you’re shopping for homeowners and adding that personal liability piece, also shops for new auto insurance because it could save you money.

And, lastly, buy life insurance. Even a cheap policy. Just enough to cover the size of your mortgage. Because, in the event of your untimely demise, your mortgage doesn’t go away. Your payments are still due.

With a life insurance policy in place for at least the amount of your mortgage, the people you love and who love you will receive a cash payment for the amount of your policy which pays the house off in full and lets them stay put in that home for as long as they want. A cheap policy might cost you $20 per month. Not even that. Get one.

19. Going cheap on insurance

While we’re talking about insurance, you’ve saved money in all the wrong places. Hey, saving money is great, and paying for insurance can feel like a waste to you but owning a home is different from renting one and when things go bad, they get expensive.

In a home with hardwood floors, for example, just one inch of water from heavy rain, a busted faucet, a leaky pipe – it can cost over $20,000 to repair and that’s a cost you don’t want to fight your insurer for. Or, when your roof starts to leak – which happens with a lot of homeowners – you don’t want to fight for reimbursement.

A bare-bones insurer might withhold payment. A better insurance company will not. Understand that with insurance, a cheap policy is often the most expensive. When something goes wrong, you don’t want to fight to get your money. Home repairs aren’t cheap. So pay a bit more and get better coverage.

20. Not accounting for closing cost

You’re not accounting for other costs outside of your down payment. When you buy a home, in most cases, you’ll bring more to your closing than just your down payment. Because there are costs associated with buying a home.

You’ll have costs for getting your mortgage set up and costs for your notary who will witness your signing. You’ll also have state and local government costs for recording your mortgage and issuing your deed. And, you may pay a transfer tax – a buyer’s sale tax – in certain municipalities.

Overall, costs can range up to an extra 5 or 6 percent although that’s atypical. Generally, costs are 1 to 2 percent. You’ll want to budget for that. And you can find out exactly how much you’ll need to budget and when.

When you get your pre-approval which’ll estimate pretty closely to a final number what you should budget for costs at your closing.

21. Not budgeting for maintenance and repairs

And, lastly: twenty-one: You’re not saving money for home repairs and maintenance. When you own a home, things break and break down. Ordinary things. Windows. Appliances. floorboards. And you’ll want to replace things, too like furniture. Have a budget for it.

A good rule is that you’ll spend somewhere around 1.5 percent of your home’s value each year on repairs, upgrades, and improvements – that’s $1,500 for every $100,000 in a home. You may not need it every year but you’re definitely going to need it some years.

Final Thoughts

I know how important it is, and what a sense of accomplishment it is to buy your first home. It’s a big deal. It really is. And in your desire to stop renting and get your own place, and build your own wealth, you will skip over something important. Not because you mean to, but because buying a home is an emotional experience as much as it’s a financial one.

There is no doubt this list is incomplete. You will do something between now and the day you close that look back and say “That was dumb.” And that’ll be a lesson YOU can pass on. Maybe if you’ve got one now, you can put it in the comments.

It’s okay to make mistakes. Just don’t make the ones we’ve talked about here. Especially the one we started with: about not getting pre-approved. Get pre-approved first. Before you do anything else. It’s your starting point. Everything starts with your pre-approval. So that’s it. 21 first-time home buyer mistakes. And I hope it’s a good list for you.

DISCLAIMERS: Any information or advice available on this channel is intended for educational and general guidance only.

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