First Time Homebuyer Mistakes to Avoid This Year

Buying a home can be a whirlwind. There are many common mistakes that a first-time homebuyer can make. Preparation is key to ensuring your homebuying experience is smooth. Let’s take a look at these all-too-frequent errors and how you can avoid them!

1: Failing to Set a Realistic Budget

As a first-time homebuyer, you probably want to dive in and look at homes right away. However, preparation is essential to the process. Setting a realistic budget based on your income and your other debt is an important preliminary step.

Use a home affordability calculator to estimate how much you can afford. The calculator will take you through hidden costs you may not be thinking about. Think costs like property taxes, closing costs, and HOA fees. Figuring out what you can realistically afford will prevent you from stretching your budget so tight that you can’t afford to live the way you want to (also known as being house poor).

2: Not Getting Pre-Approved for a Mortgage

For the first-time homebuyer, getting pre-approved for a mortgage can be the key to getting the home you want. Not only does a pre-approval give you a better sense of what you can afford, but it also enables you to move quickly when the right opportunity presents itself. In so doing, pre-approval puts you in a better bargaining position. This can make the difference between getting your dream house and losing it to another bidder.

3: Waiving Contingencies Without Understanding the Risks

In a competitive market, a first-time homebuyer may feel pressured to waive certain contingencies to make their offer more attractive to the seller. While this can help you win a bidding war, it also exposes you to financial risk. The most common contingencies include:

• Home Inspection Contingency: Skipping the home inspection means you’re buying the home “as-is,” with no ability to discover potential problems like foundation cracks, mold, or electrical issues. These problems could wind up being very expensive down the road.
• Financing Contingency: If your mortgage or other financing falls through, this clause allows you to back out without losing your deposit.
• Title Contingency: This contingency ensures there are no legal or financial claims against the property. Waiving it could mean that the property was put up as collateral for a loan that hasn’t been paid off, or that an undisclosed heir comes out of the woodwork in a few years.

Contingencies are there to protect you. Before waiving any of them, talk to your real estate agent about the risks and whether there are safer ways to make your offer more competitive. These can include increasing your earnest money deposit or moving the closing date.

4: Rushing into a Decision

House hunting can feel frantic, especially for a first-time buyer. Between the flurry of activity, the threat of competitive bids, and the fear of missing out on your dream home, you may feel pressured to jump at the first house that seems like it could work for you. Add to that the many house-hunting television shows where families find the perfect home in 3 days, and you may think that you’re supposed to make a decision quickly.

However, rushing into a decision could be a huge mistake. Buying a home is a long-term investment, and it’s worth taking more time, researching the neighborhood, checking local transit options and commuting times, looking into the local schools, and figuring out if you could live in the home for at least 3 to 5 years.

5: Ignoring Future Resale Value

When you’re a first-time buyer, it’s easy to focus only on what’s appealing to you right now, but you should think ahead to what makes a home valuable for resale. Factors like location, school district, layout, and nearby amenities can all affect resale value. Even if you plan to stay long term, keeping resale value in mind is always a good idea.

6: Choosing the Wrong Lender or Loan Type

As a first-time homebuyer, you might assume your bank is the best place to start, but shopping around can save you thousands over the life of your loan. Different lenders offer different interest rates and fees, along with varying levels of customer service. It’s good practice to compare quotes from at least three lenders.

Choosing the right loan type can also make a huge difference in how much house you’ll be able to afford. Government-backed options like FHA loans can help buyers with lower credit scores or smaller down payments, while VA and USDA offer loans with no down payment. That said, a conventional loan may be a better fit if you have strong credit and can put down 5% or more. Each loan type has different eligibility criteria, insurance requirements, and closing costs.

Working with a knowledgeable mortgage broker or real estate agent can help you figure out your options where lenders and loan types are concerned. Do the research before you start touring homes.

7: Not Researching First-Time Buyer Programs

There is a wide range of first-time homebuyer assistance programs available at the federal, state, and local levels. These include grants, low-interest loans, and forgivable loans that can help cover your down payment or closing costs. For example, FHA loans allow qualified buyers to purchase with as little as 3.5% down, while VA loans (for eligible veterans and service members) and USDA loans (for rural areas) offer 0% down financing.

States and municipalities often offer additional support, such as matched savings programs or down payment grants for buyers with lower incomes or who want to purchase in specific areas. Some lenders also have special programs geared toward first-time homebuyers, including people with lower credit scores.

How to Avoid Common First-Time Home Buyer Mistakes

The best way to avoid mistakes is to get informed ahead of time, work within your budget, access the right supports and resources, and take your time. A trusted real estate agent, mortgage advisor, or housing counselor can help you steer clear of pitfalls while serving as an informational resource and a guiding hand if you’re experiencing home-buying anxiety. Remember that it’s fine to ask lots of questions and to be skeptical about things you don’t understand.