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Buying your first home is an exciting milestone, and avoiding common missteps can save you from unnecessary stress and expenses. This guide helps you navigate the process with confidence.
Buying your first home can be an empowering and exciting process– a major step toward freedom, security and even creativity. It can also be a source of confusion and apprehension if unprepared.
First-Time Homebuyers Preparation: Avoid These Mistakes
Since a home is likely one of the largest purchases you will ever make, it’s important to educate yourself on every stage of the home-buying process and make informed decisions. To help you navigate this path with confidence, we've listed 22 common mistakes to avoid.
Mistakes to Avoid During the Preparation Phase
When first-time homebuyers worry about what can go wrong, visions of plumbing failures or a leaky roof often come to mind. While being prepared to handle difficulties like these is important (more on that later), planning for a smooth home-buying experience starts long before moving in. Here’s what to avoid during the preparation phase:
Mistake #1: Ignoring Your Credit Score
One of the biggest mistakes first-time homebuyers make is failing to understand their credit standing before applying for a mortgage. Lenders use your credit report and score to determine loan eligibility and interest rates, so failing to review and address potential issues could cost you thousands over the life of your loan. Even a difference of one or two percentage points can add hundreds of dollars to your mortgage costs.
It's also important to understand that credit reports and credit scores are not the same—your report contains your financial history, while your score is derived from that information. Mortgage lenders rely on these reports, so verifying their accuracy can make a big difference in loan eligibility, interest rates and monthly payments.
How to avoid this mistake: Before applying for a mortgage, request your free credit report from Equifax, Experian, or TransUnion at AnnualCreditReport.com. Once received, carefully review your report and dispute any errors. To reduce outstanding debt, make sure to pay your bills on time. These steps could improve your credit score, helping you qualify for better loan options and lower interest rates.
Mistake #2: Not Saving Early Enough
Saving up for a down payment can take several years. The down payment is the upfront portion of a home’s purchase price that a buyer pays before securing a mortgage for the rest. While VA loans require no down payment, most other loan types require 20% or more to avoid mortgage insurance.
Of course, anyone would want to avoid missing out on buying the home they want because they have not yet reached their financial savings goal.
How to avoid this mistake: Start saving as early as you can. Consider setting up a dedicated savings account and automating contributions to build your down payment over time.
Mistake #3: Underestimating the True Cost of Buying a Home
Once you’ve optimized your credit score and down payment savings, it’s time to take a hard look at the numbers. Do you understand all the costs involved with buying a home? Are you ready to take them on, plus a possible unexpected bill or two? Hint: It’s not just your mortgage payment.
How to avoid this mistake: Factor in more than just your mortgage—homeownership comes with property taxes, insurance, utilities and maintenance costs. Understanding the complete picture helps you budget wisely and avoid unwelcome surprises.
Mistake #4: Not Doing Your Homework
Another mistake aspiring homebuyers make is not exploring different mortgage options before applying for a loan. With so many types of mortgages available, failing to do your homework could mean missing out on a loan that better fits your financial situation, or paying more than necessary in interest and fees.
How to avoid this mistake: To start, research and familiarize yourself with various loan types, such as:
- Conventional Loans: These are not insured by the government and typically require higher credit scores and down payments.
- FHA Loans: Backed by the Federal Housing Administration, these loans offer lower down payment options and are more lenient with credit scores.
- VA Loans: VA loans are available to veterans and active-duty service members, and they often come with no down payment and favorable terms.
- 30-Year Mortgage: This is a fixed-rate loan spread over 30 years. It offers lower monthly payments but results in higher total interest over time.
- 15-Year Mortgage: A 15-year mortgage is a fixed-rate loan repaid in 15 years. It features higher monthly payments but lower interest costs over the life of the loan.
- Adjustable-Rate Mortgage (ARM): An ARM loan has an initial fixed-rate period, followed by rate adjustments based on market conditions. ARMs typically start with lower interest rates but can increase over time, making them ideal for short-term homeowners or those expecting future income growth.
Mistake #5: Not Shopping Around
Different lenders may offer varying interest rates, loan terms and fees, which can significantly impact your monthly payments and your loan’s overall cost.
How to avoid this mistake: Don't settle for the first lender you find. Take the time to research lenders, compare rates, read reviews and consult with each lender’s loan experts. Evaluate fees, terms and services carefully to find the best option with the most competitive closing costs.
Mistake #6: Skipping Mortgage Pre-Approval
One of the biggest mistakes homebuyers make is not getting pre-approved from a lender before starting their home search. Without pre-approval, you risk falling in love with a home you can't afford, losing out to more prepared buyers or facing delays when making an offer.
A mortgage pre-approval gives you a clear understanding of how much you can borrow, helping you shop within a realistic price range. In situations where there are several interested buyers, it’s unlikely the seller will even consider an offer from someone who hasn’t been pre-approved already. Time is of the essence– if you wait until after finding your dream home, it may end up being too late.
How to avoid this mistake: Before you start house hunting, talk to your lender, get a pre-approval and get ready to stand out as a serious buyer.
Mistake #7 Not Budgeting for Closing and Moving Expenses
Beyond the down payment, you will face closing costs, possible contractor fees, moving expenses, repairs and cosmetic updates—all of which can add up quickly. Underestimating these costs could leave you scrambling to cover expenses you didn’t anticipate.
How to avoid this mistake: Factor these expenses into your home-buying budget and set aside funds for them. You will also need money to cover any repairs that the seller does not agree to in your negotiations.
Mistake #8: Emptying Your Savings
Draining your savings to buy a home can put you in a risky financial position. If you're purchasing a previously owned home, unexpected repairs are almost inevitable, whether it’s replacing a part in your HVAC system, fixing a leak or repairing a malfunctioning appliance. Homeownership comes with expenses; without a financial cushion, even minor issues can become major financial setbacks.
How to avoid this mistake: Having an emergency fund from day one helps ensure you're prepared for the unexpected and can handle home repairs without added financial stress. Before purchasing a home, have an emergency fund that covers at least three to six months of living expenses. This fund will provide a safety net for unexpected homeownership costs and other life events.
Mistake #9: Ignoring First-Time Homebuyer Programs
Aspiring first-time homebuyers sometimes assume homeownership is beyond their financial reach. In reality, numerous assistance programs are available to make purchasing a home more attainable. Overlooking these opportunities could mean missed chances to own a home.
How to avoid this mistake: Ask your lender about federal, state and local programs designed to help first-time buyers. Options like Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® offer down payments as low as 3%, helping low- to moderate-income borrowers secure affordable financing. Many programs also provide down payment assistance, lower interest rates and closing cost aid, making homeownership more accessible.
Mistakes to Avoid When Shopping for Homes
Now that you have your financing (and overall budget) in order, it’s time for the fun part—shopping for your first home. But before you start visiting open houses and browsing online listings, review these mistakes to avoid.
Mistake #10: Not Knowing What You Want in a Home
Once you start shopping for a home, it can take time to find the right one. Without a clear idea of your must-haves and deal-breakers, you may become frustrated viewing homes that don’t fit your basic requirements.
How to avoid this mistake: Before you leap into home shopping, evaluate your short-term and long-term needs and establish your priorities.
What area of town do you want to live in? What type of home do you want? How big? Are you starting a family soon and may need more space? Do you have dogs and need a fenced-in yard? A home is a big commitment, and knowing exactly what you want helps ensure you make a choice that fits your life long term.
Mistake #11: Not Being Flexible
Another mistake first-time homebuyers make is expecting to find a home that checks every single box on their wish list. The perfect home is a rare find, and being unwilling to compromise at least a little may limit your options or push you beyond your budget–a little flexibility goes a long way.
How to avoid this mistake: It’s important to be both flexible and diligent when home shopping. While it's important to know what you want, being too rigid can make the home search frustrating and may even cause you to pass up great opportunities.
Make a list of your must-haves, then hone it down to your absolute most vital ones. You can add, renovate or fix other things on your list when the time is right.
Mistake #12: Not Choosing a Local Real Estate Expert
A real estate agent who does not understand your preferred home location could mean overpaying for a property, missing out on hidden gems or ending up in a neighborhood that doesn’t fit your needs.
Local agents offer invaluable insights into neighborhood trends, property values and community nuances, all of which are essential for making well-informed decisions.
How to avoid this mistake: Choose a real estate agent who knows your target area well. They’ll provide key market insights, find homes that fit your requirements and assist you in your negotiation process. Their local knowledge can help you buy a home with confidence.
Mistake #13: Letting Emotions Drive the Decision
Buying a home is an emotional process. It’s a huge milestone. However, allowing your emotions to drive your decisions can lead to choices that may not align with your long-term goals. It's easy to become attached to a property's aesthetics or features, potentially disregarding critical aspects like budget constraints, necessary repairs or neighborhood suitability.
How to avoid this mistake: Establish your priorities and a realistic budget. Try focusing only on properties that fit your general criteria. Your real estate agent can provide an objective perspective, helping you evaluate properties based on facts rather than feelings.
Mistake #14: Ignoring Resale Value and Future Needs
Purchasing a home that fits your current needs without considering future growth or resale value can lead to challenges. A home should be able to adapt to life changes, whether that’s needing more space, upgrading technology or ensuring it holds value in the market.
How to avoid this mistake: Think long-term before making a purchase. Consider whether the home allows for expansion, such as adding extra rooms. Check local zoning laws to confirm if any future modifications are possible. If you plan to sell in a few years, research market trends. Buying a home in a growing or high-demand neighborhood can help protect your investment and increase resale value.
Mistake #15: Not Understanding the Importance of Location
You can renovate, expand and update a home– You can’t change its location. That’s why the saying “location, location, location” holds true. The neighborhood you choose affects you and your family’s daily life, access to amenities, and future property value.
How to avoid this mistake: Research potential areas thoroughly before purchasing. Consider factors like proximity to work, quality of local schools, availability of public transportation and neighborhood safety. Visit the area at different times of the day and night to get an idea of traffic and livability.
Mistakes to Avoid in the Purchase Process
Your offer on the home you want has been accepted. As the momentum builds and you get closer to closing, here are the next mistakes that you’ll want to avoid.
Mistake #16: Skipping the Home Inspection
You’ve found what looks to be the absolute perfect house in your budget. Your seller has even provided an inspection. You’ve done a walk-through with your agent, and everything looks to be in great shape. But relying solely on the seller’s assessment could be a costly mistake. Hidden issues, such as outdated wiring, plumbing problems or structural damage, aren't always visible during a walk-through and may not be fully disclosed in a seller-provided report.
How to avoid this mistake: Hire your own professional home inspector. Yes, you need to pay for it, but not finding out about costly issues can end up costing you far more than the inspection fee. Unless you’re an expert, a simple visual inspection may not alert you to problems such as an outdated electrical panel, corroded sewer pipes or a failing roof.
Mistake #17: Failing to Obtain Insurance Quotes
You’re buying a house with similar square footage to your parents’ home in the same county. Should you assume your homeowners insurance costs will be in the same ballpark as your parents’ when planning for this new expense? Definitely not.
Not getting insurance quotes before buying a home can lead to unexpected costs or limited coverage. Rates vary based on location, home condition and risks like floods or natural disasters. Higher-than-expected premiums could put pressure on your budget.
How to avoid this mistake: Get quotes early and ensure the coverage is tailored to the specific risks associated with your home. Also, consider whether you want to cover any valuable items you will keep in your home, such as jewelry, antique furniture or collectibles. Make sure you have a clear estimate of your insurance costs before committing to a home purchase.
Mistake #18: Not Researching Property Taxes
Consider again the scenario of buying a home with similar square footage and location as your parents’ house. Will your property taxes then be close to what your parents currently pay? Never make any assumptions about property taxes, as they are calculated based on the last value assessment.
How to avoid this mistake: Before buying a home, research local property tax rates and how they may change over time. Check with the county assessor’s office to understand current and projected tax assessments based on property value increases or local policy changes. If the home was recently renovated or in a growing area, taxes could rise significantly.
Mistake #19: Making Major Financial Changes Before Closing
During the mortgage underwriting process, your lender will assess your financial stability to ensure you can manage the loan. Significant changes such as large purchases, new debts or job shifts, can disrupt this evaluation, potentially leading to delays or even loan denial. To confirm consistency, lenders often verify your financial status multiple times, including just before closing.
How to avoid this mistake: Try to maintain your financial situation from application through closing. Avoid major purchases, refrain from opening new credit accounts, and keep your employment stable. If changes are unavoidable, promptly inform your lender to assess potential impacts on your loan approval.
Mistake #20: Not Considering a Rate Lock
Failing to secure a mortgage rate lock can expose you to fluctuating interest rates during the loan process, potentially increasing your monthly payments.
How to avoid this mistake: To protect yourself from rising rates, consider locking in your mortgage rate when you apply for a loan.
Mistake #21: Overconfidence in DIY Skills
Did you notice that the home you want to buy could use a new deck or flooring? Be careful not to assume it will be a simple weekend project you can complete on your own. It may take more expertise than you initially anticipated, and you wouldn’t want to discover this after you’ve already begun the project.
How to avoid this mistake: Don’t overestimate your capacity to do DIY repairs and renovations. Consult with professionals to understand the scope and potential challenges of your projects. This will allow you to make informed decisions about which projects you can undertake and which would be better off outsourced. If you need to hire an expert to complete a job, determine how it will fit into your budget.
Learn how to recognize the signs that your dream home could potentially become a money pit.
Mistake #22: Only Skimming the Paperwork
It’s the big day—your mortgage closing. And it involves reviewing and signing many documents. Misunderstanding what the documents are and what they mean could lead to unexpected fees, loan terms you weren’t prepared for, or delays if errors need correction before finalizing the purchase.
How to avoid this mistake: Review your Closing Disclosure before closing. Under the “Know Before You Owe” rule, lenders must provide the disclosure at least three days in advance, ensuring transparency and giving you time to review and address any concerns before finalizing your mortgage.
You’ll also want to address any issues discovered during the final walk-through before closing day, as they could impact the loan amount. This may require new forms and could even lead to rescheduling the closing.
From Peaceful Planning to a Calm Closing
Buying your first home is a learning experience, and most buyers will still make a few mistakes. With careful research and planning, yours can be limited to issues like choosing the wrong color on your initial attempt at painting your kitchen.
If you’re a first-time homebuyer, you probably still have many questions. Check out our First-Time Homebuyers Guide for a deeper dive into what to expect. If you are ready to start shopping for your first home, be sure to stay ahead of your competition—contact a Pennymac Loan Expert today.
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