Key takeaways

  • It’s a good idea to get preapproved for a mortgage before you start looking at homes. A preapproval will tell you how much home you can afford.
  • Keep an open mind when looking at homes and take your time. Don’t rush the process or make a decision based on emotion alone.
  • Understand your loan options, and talk to a few lenders about what type of loan might be best for your situation. Don’t overlook options like FHA loans, USDA loans and VA loans.

Buying your first home can be an overwhelming experience. Whether you are a brand-new house hunter or an experienced buyer, you can sidestep potential pitfalls by understanding the basics of homebuying and knowing which questions to ask. The tips below can help you avoid some common first-time homebuyer mistakes while house hunting, mortgage shopping and moving in.

Common mistakes for first-time homebuyers

1. Looking for a home before applying for a mortgage

When you’re buying your first house, it’s common to start viewing homes before ever getting in front of a mortgage lender. In today’s market, you may find that housing inventory is tight because there’s far more buyer demand than affordable homes on the market.

In such a competitive market, you’ll find it almost impossible to get your offer taken seriously unless you have a mortgage preapproval (unless, of course, you’re able to make an all-cash offer). That’s because sellers won’t want to take a risk on someone who isn’t even certain they can get financing — especially when they have many other offers on the table.

If you find a home you like, you may pay less than you would have during the height of the pandemic and subsequent supply shortages. Housing prices reached a peak in Q4 2022, when the median home price was $479,500. Comparatively, the average home price in Q1 of 2024 was $420,800, according to HUD data.

When you get preapproved, you might also consider locking in your interest rate. Doing so will help you get a handle on costs and lessen any concerns about rising rates when you do make an offer.

How this affects you: You might be in a tricky situation if a home you love hits the market and you haven’t consulted a lender. You also might look at homes that you can’t really afford.

What to do instead: “Before you fall in love with that gorgeous dream house you’ve been eyeing, be sure to get a fully underwritten preapproval,” says Alfredo Arteaga, a loan originator with CommLoan in Newport Beach, California. Being preapproved shows that you’re a serious buyer whose credit and finances pass muster to successfully get a loan.

 2. Fixating on the house over the neighborhood

Sure, you want a home that checks off the items on your wish list and meets your needs. Buying purely based off of a home’s cosmetics, however, can be short-sighted if you’re purchasing in a neighborhood you dislike or an area that proves inconvenient, says Alison Bernstein, founder of Starter Ventures in New York City.

“Selecting the right town is critical to your life and family development,” says Bernstein. “The goal is to find you and your brood a place where the culture and values of the [area] match yours. You can always trade up or down for a new home, add a third bathroom or renovate a basement.”

How this affects you: You could wind up loving your home but hating your neighborhood.

What to do instead: Settle on what your priorities are in a community, and do your homework. Depending on your needs or preferences, you might want to research school ratings, commute time and other factors. You could visit the neighborhood at different times to get a sense of traffic flow and see if it’s an area that’d appeal to you. The right neighborhood is a more important fit than the right home, at least to start out with — improvements can be made to the property, but the area will be slower to change.

3. Waiting for the “unicorn”

Unicorns are mythical creatures in nature and real estate. One of the most common first-time homebuyer mistakes is looking for a home that checks each of your boxes. Looking for perfection can narrow your choices and lead you to pass over good, suitable options for starter homes in the hopes that something better will come along. Don’t let pie-in-the-sky thinking sabotage your search, says James D’Astice, a real estate broker with Compass in Chicago.

How this affects you: Looking for that dream home might limit your real estate search. In addition, doing so can lead to you missing opportunities or overpaying for a home.

What to do instead: Keep an open mind about what’s on the market and be willing to put in some sweat equity, says Ralph DiBugnara, president of Home Qualified in New York City. He notes there are loan programs that let you roll the cost of repairs and renovations into your mortgage, too.

4. Making decisions based on emotion

Buying a house is a major life milestone. It’s a place where you’ll make memories, create a space that’s truly yours and put down roots. It’s easy to get too attached and make impulsive decisions, so remember that you’re also making one of the largest investments of your life, says DiBugnara. You have to be practical and never lose sight of your budget and long-term financial goals.

How this affects you: Emotional decisions could lead to overpaying for a home and stretching yourself beyond your financial means.

What to do instead: “Have a budget and stick to it,” says DiBugnara. “Don’t become emotionally attached to a home that is not yours.”

5. Talking to only one lender

First-time buyers often get a mortgage from the first (and only) lender or bank they talk to, and that’s a big mistake. By not comparing offers, you’re potentially leaving thousands of dollars on the table.

How this affects you: The more you shop around, the better basis for comparison you’ll have to ensure you’re getting a good deal and the lowest rates possible.

What to do instead: Consult at least three different lenders. Try to get rate quotes all on the same day since rates change regularly. Compare rates, lender fees and loan terms. Don’t discount customer service and lender responsiveness because both play key roles in making the mortgage approval process run smoothly. Bankrate’s mortgage rate tables are a great place to start comparison shopping.

6. Being careless with credit

A mortgage lender will pull your credit report at preapproval to make sure things check out and again just before closing. Your lender wants to verify nothing has changed in your financial profile, including your credit score.

How this affects you: An important thing to know as a first-time homebuyer is that any new loans or credit card accounts on your credit report can jeopardize the closing and final loan approval. Buyers, especially first-timers, often learn this lesson the hard way.

What to do instead: Don’t make drastic changes to your finances from preapproval to closing. That includes avoiding opening new credit cards, closing existing accounts, taking out new loans or making large purchases on existing credit accounts. Pay down your existing balances to below 30 percent of your available credit limit, if you can, and pay your bills on time and in full every month.

7. Overlooking FHA, VA and USDA loans

First-time buyers might be cash-strapped in this environment of rising home prices. If you have little saved for a down payment or your credit isn’t stellar, you might have trouble qualifying for a conventional loan.

How this affects you: You might assume you have no financing options and delay your home search.

What to do instead: Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S. Department of Agriculture (USDA loans). Here’s a brief overview of each:

  • FHA loans require just 3.5 percent down with a minimum 580 credit score. FHA loans can fill the gap for borrowers who don’t have top-notch credit or little money saved up. The major drawback to these loans is mandatory mortgage insurance, paid annually and upfront at closing.
  • VA loans are only for eligible active-duty and veteran military service members and their spouses. These loans don’t require a down payment, but some borrowers may pay a funding fee. Private lenders offer VA loans and come with a cap on lender fees to keep borrowing costs affordable.
  • USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for low-income eligible borrowers.

8. Moving too fast

Buying a home can be a complex process, particularly when you get into the weeds of mortgage underwriting. Rushing the process can cost you later, says Nick Bush, a Realtor with Keller Williams Realty in Rockville, Maryland. “The biggest mistake that I see is to not plan far enough ahead for the purchase,” says Bush.

How this affects you: Rushing the process means you might not save enough for a down payment and closing costs. Speeding toward closing can also keep you from addressing items on your credit report that prevent you from securing more favorable loan terms.

What to do instead: Map out your homebuying timeline at least a year in advance. Keep in mind it can take months — even years — to repair poor credit and save enough for a down payment. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get preapproved.

9. Buying more house than you can afford

First-time homebuyers need to know that it’s easy to fall in love with homes that might stretch their budget, but overextending is never a good idea. With high home prices, sticking close to your budget is especially important.

How this affects you: Buying more home than you can afford can put you at higher risk of foreclosure if you fall on tough financial times. You’ll have less room in your monthly budget for other bills and expenses. Being “house poor”  can also crowd out other opportunities, such as funding a retirement account, a child’s education fund or savings for a vacation.

What to do instead: Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan doesn’t mean you can comfortably handle the monthly payments that come with it. Factor in your whole financial profile when determining how much house you can afford.

10. Draining your savings

Spending all or most of your savings on the down payment and closing costs is one of the biggest first-time homebuyer mistakes, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Illinois. “Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance, but they are picking the wrong poison because they are left with no savings at all,” says Conarchy.

How this affects you: Homebuyers who put 20 percent or more down don’t have to pay for private mortgage insurance (PMI) when borrowing a conventional mortgage. That usually translates to substantial savings on the monthly mortgage payment, but it’s not worth the risk of living on the edge, says Conarchy.

What to do instead: Aim to have three to six months of living expenses in an emergency fund, even after you close. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is a risk best avoided. And you can remove PMI on a conventional loan once you’ve achieved 80 percent equity in your home.

11. Assuming you need a 20 percent down payment

The long-held belief that you must put down 20 percent is (often) a myth. While a 20 percent down payment does help you avoid mortgage insurance, many buyers today don’t want to (or can’t) put down that much money. In fact, the typical down payment on a home was 8 percent for first-time buyers in 2022, according to the National Association of Realtors. Some communities like co-ops or condos, could still require a larger down payment, so check with your real estate agent about specific community requirements and budget accordingly.

How this affects you: Delaying your home purchase to save 20 percent could take years. It could also limit your ability to achieve other financial goals, such as maximizing your retirement savings, adding to your emergency fund or paying down high-interest debt.

What to do instead: Consider other mortgage options. You can put as little as 3 percent down for a conventional mortgage, and FHA loans only require 3.5 percent down if your credit score is 580 or above. With some other types of loans, you might even be able to secure a mortgage with no down payment at all.

​​12. Missing out on assistance programs

There are lots of programs out there to help first-time homebuyers. This can vary from local government or community programs that offer loans on generous terms to grants that give you cash to put toward a down payment. Some lenders even offer discounted rates to first-time homebuyers.

How this affects you: If you don’t explore the potential money-saving programs for first-time homebuyers, you might end up paying more of a down payment than you needed to or missing out on loans with advantageous terms.

What to do instead: Check out your local, state and federal housing authority websites to find out what loans and grants may be available to first-time homebuyers.

13. Not lining up gift money

Many loan programs allow you to use a gift from a family, friend, employer or charity toward your down payment. Not sorting out who will provide this money and when, though, can throw a wrench into a loan approval.

How this affects you: “The time to confirm that the Bank of Mom and Dad is ready, willing and able to provide you with help for your down payment is before you start home shopping,” says Dana Scanlon, a Realtor with Keller Williams Capital Properties in Bethesda, Maryland. “If a buyer ratifies a contract to purchase a home with an understanding that they will be getting gift money, and the gift money fails to materialize, they can lose their earnest money deposit.”

What to do instead: Have a frank discussion with anyone who offers money as a gift toward your down payment about how much they are offering and when you’ll receive the money. Make a copy of the check or electronic transfer showing how and when the money traded hands from the gift donor to you. Lenders will verify this through bank statements and a signed gift letter.

14. Not negotiating a homebuyer rebate

Many first-time buyers are unfamiliar with the concept of homebuyer rebates, also known as commission rebates. These rebates can be up to 1 percent of the home’s sales price and come out of the buyer agent’s commission, says Ben Mizes, co-founder and president of Clever Real Estate in St. Louis.

How this affects you: Homebuyer rebates are available in most U.S. states, but not all. Currently, eight states prohibit homebuyer rebates: Alabama (only certain types), Alaska, Kansas, Mississippi, Missouri, Oklahoma, Oregon and Tennessee.

What to do instead: If you live in a state that allows homebuyer rebates see if your agent is willing to provide one at closing. On a $300,000 home purchase, this can be a $3,000 savings for you.

15. Ignoring moving and other upfront costs

When buying your first home, you need to make sure you have some savings left over. Between renting a truck or hiring movers, buying boxes and dealing with storage, moving can be expensive, even if you’re handling it on your own.

You might also want to make significant renovations or repairs to the house before you actually move in. Make sure that you budget for these costs when buying a home.

How this affects you: If you forget to include the cost of moving — even just the purchase of packing supplies can add up — you may end up in a challenging financial position. In addition, not putting money aside for even minor renovations or updates can make a difference in the comfort of your new home.

What to do instead: Learn about upfront moving costs and budget for a tip. If you are planning a renovation or repairs, price out everything from the cost of building materials and products to the actual construction. Try to get as many estimates for the work from your contractor ahead of time.

16. Overlooking the hidden costs of homeownership

One of the most important things to know as a first-time homebuyer is that owning a home can be more expensive than you anticipate. If you had sticker shock from seeing your new monthly principal and interest payment, wait until you add up the other costs of owning a home. As a new homeowner, there are many other potential expenses to budget for, like property taxes, homeowners/hazard insurance, utilities — and good old average maintenance and upkeep.

How this affects you: All told, you could end up paying thousands per year for taxes, insurance and maintenance costs. Not having enough cushion in your monthly budget — or a healthy rainy day fund — can quickly put you in the red if you’re not prepared.

What to do instead: Your real estate agent or lender can help you crunch numbers on taxes, insurance and utility bills. Shop around for insurance coverage to compare quotes. Finally, aim to set aside at least 1 percent to 3 percent of the home’s purchase price annually for repairs and maintenance expenses.

Next steps for first-time homebuyers

Now that you know the homebuying mistakes to avoid, you can start making progress on the right steps forward. If you’d like more novice-oriented advice, check out our first-time homebuyer guide and our discussion of who can qualify as a first-time homebuyer (spoiler alert: you may be able to qualify as one, with all its ensuing perks — even if you have owned a home previously).