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17 First Time Home Buyer Mistakes And How To Avoid Them

15-Minute Read
Published on October 21, 2022
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*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.

If I only knew then what I know now.”

Ask homeowners about the first time they purchased a home, and that’s the answer you’re likely to hear. Needless to say, there are many mistakes first-time home buyers make. Some are minor, some are costly and some even lead people to purchase a home that is completely wrong for them.

Luckily, all of these mistakes are avoidable if you know where they lurk. Here, we identify 17 key mistakes and teach you how to avoid them.

17 First Time Home Buyer Mistakes And Our Tips To Avoid Them

For every potential pitfall, there’s a piece of simple advice on how to avoid it.

Mistake 1: Not Taking The Time You Need To Prepare

Think of the process of buying a house as a marathon, not a sprint. You’ll need to train before you set out. That means taking a thorough look at your finances before you begin the initial application process.

Specifically, that means checking your credit report for errors. You’ll also want to monitor your credit score and improve it if needed.  You’ll also need to calculate your debt-to-income ratio (DTI) and reduce your debt or increase your income if it’s too high.

You’ll also want to gather your financial documents, including:

  • W2s
  • Pay stubs
  • Income tax returns
  • Bank statements
  • Other asset documentation

The better prepared you are when you apply, the easier the application process will be. You’ll be rewarded with lower interest rates, which means you’ll pay much less for your mortgage over the life of the loan.

You’ll also need to take the time to save up for your down payment and closing costs. We’ll get into more detail on that below, but as you’re getting ready, saving as much as possible and identifying potential sources of cash should be a high priority.

Mistake 2: Not Getting Initial Approval On A Home Loan Before Looking For A Home

You may be itching to start attending open houses, but you’ll be better off in the long run if you get your initial approval out of the way before you start looking. Doing this first is a good idea for a variety of reasons, but mostly because it’s harder to settle for a more modest home when you’ve already looked at homes that you ultimately can’t afford.

It’s important to understand the difference between prequalification and preapproval. Prequalification is an important tool for helping you figure out what you can afford, and using a prequalification calculator is a good way to get an idea of what you’ll be approved for. The thing is, if you’re like most people, you’ll likely guess at some of the figures, making it more of a rough estimate.

Preapproval, on the other hand, means that a lender has verified your financials, your credit history and your ability to repay and has decided that they are willing to lend to you if the house you choose also meets their requirements.

Getting preapproved for a mortgage loan helps home buyers in a few ways. It ensures they have the financial ability to purchase a home, helps them understand how much home they can afford and shows sellers and real estate agents they are serious shoppers.

Use our home affordability calculator to get an idea of what your preapproval limit might be.

Mistake 3: Buying A Home You Can’t Comfortably Afford

The amount the lender says you can afford may be very different from the amount you can comfortably afford. The lender may know your income and even your debt-to-income ratio, but that’s all they’ve considered at the preapproval stage.

Your Current Budget

Your lender doesn’t know how much you pay for groceries, utilities, gas and insurance, or how much of your budget these bills will consume when you move. Your lender also doesn’t know that you love to travel, eat out regularly or see as many concerts or shows as you can get tickets for.

It’s up to you to set a more realistic upper limit for your home purchase than the preapproval amount. Be honest about your budgetary priorities. If you can’t live without eating out regularly, factor that into your budget. Otherwise, you could end up house poor and resentful of your home.

Your New Budget

Your monthly mortgage payment is only the beginning of your new expenses. Remember that your monthly mortgage payment will include not just principal and interest repayment, but also escrow for property taxes and homeowners insurance – together referred to as PITI – as well as any private mortgage insurance (PMI) payments you may have.

FHA loans also have their own mortgage insurance premiums. If you’ll be joining a private community, you’ll have to pay a homeowners association fee as well.

Your Forever Home Vs. Starter Home

You may have dreamed of your perfect forever home, not a starter house, but that doesn’t mean it has to be your home now. You’ll live there someday, but for now, a starter home might be a better choice.

A bigger house means more space to heat and cool, resulting in higher utility costs. More home means more rooms to furnish. More home also means more roof, flooring, siding and windows to maintain, replace or repair. Especially if you’ve always rented before, the costs of homeownership will surprise you. That’s one of the few absolute statements we’re comfortable making.

One solution? Make your first home a starter home. They tend to be smaller, less expensive and closer to city centers. That translates into lower heating, cooling and transportation costs, less space to furnish and less time devoted to housekeeping.

Or consider buying a multiunit home, and have your tenants help pay your expenses. One great thing about multiunit homes is that you get to use the future rental income you’ll generate as you’re applying for a mortgage.

Either way, you may find that  your starter or duplex home is just the start of your new career or side hustle as a real estate investor. Thinking long term, you could consider your first home as your first rental property, an asset that could produce income to help you comfortably make your forever home mortgage payment.

Mistake 4: Choosing Not To Work With A Real Estate Agent

If you’re a first time home buyer, or even a third or fifth time home buyer, there’s really no reason to avoid working with a listing agent. After all, they have a wealth of experience and a fiduciary responsibility to represent your interests as if their own. Best of all, their commission is paid by home sellers.

A listing agent will help you find the features you’re looking for in a house, generally knows the inside scoop on the houses in their geographic area and will help you put your best offer forward while sticking to your budget. Their advice can be invaluable, especially if you’re preparing an offer in a highly competitive market. 

Mistake 5: Not Shopping Around For A Home Loan

Your home will probably be the biggest single investment you make in your lifetime. You’ll be borrowing hundreds of thousands of dollars and paying interest on that amount for the next 15 or 30 years. It pays to shop around for the best deal.

Benefits Of Comparison Shopping

According to Freddie Mac, getting a quote from just one additional lender could save you an average of $1,500 over the life of a loan. Getting a quote from five different lenders will double your savings, on average.

Not sure which lenders to contact? Do your research. Read a few top lender lists by reputable finance sources. Visit lender websites to learn more about the company and the products they offer. Go over customer reviews to make sure you’ll be in good hands after the loan closes.

Rocket Mortgage® retains mortgage servicing on the mortgage loans it originates. That means that you’ll enjoy the same excellent level of customer satisfaction while repaying your mortgage that you had while applying for it. It’s not all about price in comparison shopping.

Compare APRs On Loan Offers

To compare one loan to another, you need to look beyond the quoted interest rate and understand the annual percentage rate (APR). This is the actual cost of the loan, and it must be disclosed on all consumer credit applications.

Some lenders offer low interest rates but charge fees that lenders charging higher rates do not.  By comparing APRs, you’ll be comparing one loan to another, apples to apples, because it takes into account all of the costs of the loan.

Apply for a mortgage today!

Apply online for expert recommendations with real interest rates and payments.

Start Your Application

Mistake 6: Not Looking Into First-Time Home Buyer Assistance Programs

Many people overlook first-time home buyer loan programs and grants when shopping for their first home because they don’t think they qualify or they don’t even know these programs exist. These loan programs and grants make buying a home more affordable and achievable for many people.

Check out the following three main national resources for first time home buyer resources.

U.S. Department Of Housing And Urban Development (HUD)

HUD oversees the Federal Housing Administration (FHA). That means when a borrower defaults on an FHA mortgage, HUD takes ownership of the property, which in turn becomes a HUD home.

HUD offers a variety of programs geared toward making homeownership affordable. One example is the Good Neighbor Next Door program, which offers a 50% discount on HUD homes for teachers, firefighters, emergency medical technicians and law enforcement officers.

You can find all first-time home buyer programs available through states, municipalities and private sources by visiting the HUD’s Local Homebuying Assistance Programs page. It will take you to all the resources available where you want to live.

Fannie Mae

Fannie Mae is a government-sponsored enterprise (GSE). Its main mission is to buy conforming loans from commercial bank lenders and other mortgage originators after closing to keep the mortgage industry liquid. It then repackages them for sale to investors on the secondary mortgage market. When a borrower defaults on their mortgage, Fannie Mae takes ownership of the home.

Fannie Mae’s secondary mission is to help first-time and lower wage income earners attain homeownership. Its HomePath Ready program helps these prospective home buyers purchase a home with only a 3% down payment required and will pay up to 3% of the loan amount in closing costs, if they buy a Homepath home.

Rocket Mortgage offers loans through the HomePath Ready program.

Freddie Mac

Freddie Mac is another GSE. Like Fannie Mae, it buys conforming loans, but from smaller banks, credit unions and savings-and-loan institutions as well as other mortgage originators.

Freddie Mac’s Home Possible and HomeOne programs also help first time and low- to moderate-income home buyers by agreeing to purchase low interest loans with low down payments, similar to Fannie Mae’s programs.

Note that Fannie and Freddie don’t make loans themselves. By creating these programs, they are letting private lenders know that they will buy these mortgages after origination.

Rocket Mortgage offers loans through both of these programs.

Mistake 7: Not Considering FHA, VA And/Or USDA Loans

Many people are surprised that there are so many types of home loans to choose from when they start thinking about buying a home. Conforming loans – like those purchased by Fannie Mae and Freddie Mac – are loans made by private lenders according to their own criteria, which must meet Fannie’s and Freddie’s standards, but can also be stricter.

Government-backed loans differ from conforming loans because the government insures them, and therefore lenders are taking less of a risk should the borrower default.

Learn more about each of these loans and compare them to the conventional loan. Decide if any of them are a better option for you based on benefits and eligibility requirements.

FHA Loans

Some of the biggest benefits of an FHA loan are its relaxed eligibility requirements and relatively low cost. To qualify, you need a minimum FICO® Score of 580 at Rocket Mortgage and a minimum down payment of 3.5%. You may also still qualify to get the loan even if you’ve filed for bankruptcy or struggled financially in the past.

There are a couple of downsides, however. The FHA requires mortgage insurance premiums (MIP) to be paid for 11 years, even if you reach the 20% home equity threshold that would allow you to drop PMI on conventional loans before then.

Another downside is that the FHA appraisal process – which can be more comprehensive than most home appraisals – can be less attractive to sellers fielding multiple offers in competitive markets.

VA Mortgages

If you’ve served in our nation’s armed forces or are a qualifying surviving spouse, you may qualify for a VA loan. These are generally the most favorable mortgage loans available and a valuable benefit of military service. To get a VA loan, you must have a Certificate of Eligibility. You can qualify for a VA loan with a lower credit score and higher debt and may not be required to pay a down payment. With limited exceptions, you’ll have to pay a funding fee – the VA’s equivalent of PMI – but it’s a one-time fee and can be rolled into the mortgage. To be approved, you must have a debt-to-income ratio of no more than 60% and a minimum FICO® Score of 580 at Rocket Mortgage.

USDA Home Loan

A USDA loan requires no down payment and may allow you to roll your closing costs into your loan. Backed by the U.S. Department of Agriculture, this loan has eligibility requirements that include a minimum FICO® Score of 640 for many lenders, a household income that falls below the USDA limit and a home that is located within an eligible rural or suburban area. Rocket Mortgage doesn’t offer USDA loans at this time.

Mistake 8: Not Taking Time To Save Up For A Larger Down Payment

Keep this in mind: the more of a down payment you make now, the less money you’ll need to borrow and the more equity you’ll start out with. Lenders think of equity in terms of the loan-to-value ratio (LTV). A higher down payment means a lower LTV, which means you'll be less of a risk to lenders, which means you might qualify for a better rate. With a lower mortgage balance and better mortgage rate, you’ll pay less each month and ultimately reduce the total interest you pay on the loan. That could equate to thousands of dollars saved.

That said, sometimes you just can’t put enough money aside to reach a 20% down payment any time soon. That’s OK too. Just get the best mortgage you can right now, and make sure your lender removes PMI once you hit 20% equity, or – for FHA borrowers – plan to refinance into a conventional loan once you reach 80% LTV.

Think of it this way: 20% down payment is the best, but second best is whatever amount you need to buy your first home because your housing expenses will become your equity. If you rent, your housing expenses go toward your landlord’s equity.

Mistake 9: Draining All Your Savings For A Down Payment

If the pandemic housing market has shown us anything, it’s that home buyers will enter into bidding wars, pay exorbitant amounts and take extraordinary risks – like forgoing all contingencies – to get sellers to accept their offers.

Many people feel compelled to drain their savings in order to come up with enough money to put down to purchase a home, because in many parts of the country, finding a home to rent is just as difficult as finding a home to buy. The mistake many people make is forgetting about all of the hidden and unexpected costs that come with owning a home.

If you don’t have extra money set aside to handle these costs – or any other emergency expenses – you could put yourself in serious financial straits, causing you to accumulate more debt, miss payments or go to collections.

Mistake 10: Failure To Plan For Closing Costs

With such a big emphasis on the purchase price and the down payment, many people fail to plan for closing costs. Generally, closing costs run between 3% – 6% of the home’s purchase price and include:

  • Appraisal
  • Home inspection
  • Property taxes
  • Title and attorney fees
  • Lender fees
  • Application fee
  • Prepaid interest
  • Loan origination fee
  • Discount points (optional)
  • Title search fee
  • Mortgage insurance application fee
  • Upfront mortgage insurance (required on FHA and USDA loans, optional to lower or eliminate monthly mortgage insurance on conventional loans)
  • Lender and owner title insurance

Other costs like flood certification, and homeowners association, assumption and specific mortgage fees will depend on where the home is located and the type of loan you get.

Mistake 11: Skipping The Home Inspection And Waiving The Contingency

Because a home inspection may not be required to get a mortgage, some people make the mistake of not getting one. A home inspection protects the lender and the home buyer from purchasing a home that may not be worth the purchase price or have serious issues like structural damage.

In an overheated seller’s market, you may have no choice but to skip the home inspection contingency. Your real estate agent should be able to give you some background information on the home, and the seller’s disclosure form should also provide insight.

You can always ask for a home inspection even if you aren’t able to walk away from the contract without losing your earnest money. If the seller refuses, consider this a red flag. You may save more by walking away.

Mistake 12: Not Factoring In The Neighborhood

You may have found the home of your dreams, but have you taken a hard look at the neighborhood it’s in? There’s nothing wrong with buying a house in a borderline neighborhood – and there’s a huge upside if you’re getting in early on an up-and-coming neighborhood – but it’s important that you factor in the ramifications of your home choice.

The first potential problem? You may not like living there. If there are constant parking issues or you have to drive a long distance to get to the store, you may come to hate where you live. And if home values are stuck at a lower level, you may have trouble selling it when you’re ready to move on.

Mistake 13: Budget For Moving Costs

When purchasing a home, the focus is mostly on the costs you’ll incur, including the purchase price, down payment and closing costs. But there is another expense you'll encounter soon after you close: the cost of moving into your new home.

According to Angi, the average cost of a short-distance move is $1,400. If you plan on moving yourself, you’ll still need to rent a truck and pay – or at least generously feed – your movers/friends.

Mistake 14: Failing To Leave Room In Your Budget For The Hidden Costs Of Owning A Home

Many first-time home buyers are unaware of the hidden costs of owning a home because they’ve never owned a home. When moving from an apartment to a home, there can be a number of additional costs you’ve never experienced paying on your own because a landlord or maintenance person took care of it or it was just cheaper or nonexistent in an apartment. These hidden costs include:

  • Higher utility bills
  • New utilities like trash removal and recycling
  • Homeowners insurance
  • Outdoor maintenance and equipment
  • Maintenance and repair
  • Tools for home improvement and maintenance
  • Furniture to fill more space

Especially if you were forced to skip the home inspection, expect the unexpected when moving into a new home.

Mistake 15: Wasting Time Looking For Unicorns

Buying a home is a big financial and personal commitment. It’s not easy to move a home, so it’s no surprise people want to purchase something they’ll like living in for years to come. However, expecting to find the perfect home is a mistake many first-time home buyers make.

Instead of focusing on all of the must-haves and deal breakers, add a third and fourth column to your list – the nice-to-haves and the will-compromise factors. Remember, too, that it isn’t always about the perfect look or the perfect amenities. It’s about it being the right house to raise your family in or live the lifestyle you want. You’ll never be able to do that if you keep looking and waiting for something that doesn’t exist.

Mistake 16: Applying For Credit Before Closing

After the offer is accepted, it can be hard to fight the urge to buy all the things for your new home. Many people apply for new lines of credit – or make large purchases like new furniture, appliances and decorations – before closing on a house. What they fail to realize is, by doing this, they could be affecting their chances of getting the loan needed to close on the home.

Lenders don’t just check your credit score during the preapproval process. Most will also check it just before your scheduled closing day. If you apply for credit before closing, it could cause your score to drop significantly. Your mortgage could fall through right before closing.

Mistake 17: Thinking About Your Next Home Too Soon

After the thrill of the home buying process is over and things have settled down, some people already start thinking about their next home. This can happen for several reasons, including changes in personal relationships, a caretaking responsibility or a job change.

Whatever the reason, selling a home too soon may have financial consequences.

If your home appreciates, even in the short period that you’ve owned it, you could also incur capital gains taxes. This is a tax on the home’s appreciation.

If you absolutely need to move due to a major life event, consider renting out the home so that you can turn your first residence into a real estate investment.

The Bottom Line: Accept The Wisdom Of Those Who Have Gone Before

It’s no doubt intimidating when you first set out to buy a house, but we’re here to help. Our Learning Center is here to provide all the information you need to make the best decisions about your first home.

Ready to get started? Apply online now and let us help you make your home dreams come true.

Apply for a mortgage today!

Apply online for expert recommendations with real interest rates and payments.

Start Your Application

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.