Common First-Time Home Buyer Mistakes and Other Tips

Are you getting ready to buy your first home? Congratulations! The home buying process can be exciting—and overwhelming. There’s a lot of information out there, so it can be hard to know what to do as a first-time home buyer.

You’re bound to learn a lot during your first home-buying experience, and possibly make a few mistakes along the way. Luckily, we’ve got a few tips for you. There are some common mistakes first-time home buyers make, but we’re here to guide you through the process.

6 Common Mistakes Home Buyers Make

Let’s cover a few common mistakes new home buyers make. Check them out so you can walk into the process with a little more knowledge on your side.

Not getting a pre-approval
Not being realistic about your budget
Putting off credit issues
Making assumptions about the down payment
Not having a good real estate agent
Not researching mortgage lenders

1. Not Getting a Pre-Approval

Not getting mortgage pre-approval can throw a wrench in the home buying process, says Joe Parsons, branch manager with Caliber Home Loans in Dublin, California. It’s useful for home buyers to know what they can afford, and pre-approval lets home buyers check their credit. Pre-approval can also ensure sellers take you more seriously as a buyer.

2. Not Being Realistic About the Budget

When you find out the amount you’re pre-approved for, you might be pleasantly surprised. But just because you’re approved up to that amount doesn’t mean you should use it all.

    Get matched with a personal loan that’s right for you today.
    Learn more

    It’s important to take into consideration other costs, such as private mortgage insurance (PMI), homeowners insurance, property taxes and ongoing maintenance. If you tie up all your money in your mortgage payment, you could be left scrambling for an unexpected expense.

    3. Putting Off Credit Issues

    “The other thing that I see first-time borrowers fail to do is deal with credit issues that may keep them from getting the loan,” Parsons said. Those issues can include paying off debt, raising your credit score or waiting to open more credit cards.

    Your credit score is a key factor that affects the terms and conditions of your mortgage, so it’s critical to know where your score stands. Parsons says, “Credit issues may be easy to fix, which could save the borrowers literally thousands on their loan.”

    Track Credit Issues

    Check out your free credit report card from Your report card includes tips on how you can tackle each of the five key factors that go into your score—payment history, debt usage, credit age, account mix and credit inquiries.

    4. Making Assumptions About the Down Payment

    It’s not uncommon for first-time home buyers to assume they need more money for a down payment than they actually do. Parsons says, “I often hear people asking, ‘Can I get away with less than the normal 20% down payment?’ The answer is yes.”

    Qualified home buyers might be able to pay a down payment that’s as little as 3.5% on an FHA loan. Other programs, such as VA loans and USDA loans, sometimes have 0% down payment requirements.

    5. Not Having a Good Real Estate Agent

    Finding a knowledgeable real estate agent who has your interests at heart is imperative for first-time home buyers. After all, a real estate agent is responsible for steering you toward your dream home. And you likely have lots of questions.

    Your real estate agent should identify what you can qualify for based on assets and income and pinpoint what you’re seeking in terms of criteria, such as neighborhoods, lifestyle, safety and school districts.

    6. Not Researching Mortgage Lenders

    Finding a great mortgage lender is a must in a competitive market, especially for first-time home buyers who don’t know the ropes. A seasoned mortgage lender can help you set goals and secure a loan within your budget. Once you find one you trust, you can feel more confident in their mortgage rates.

    It’s important to find a mortgage lender you can trust, so start with referrals from friends and family and ask the right questions. For instance, find out if the lender surprised someone with hidden fees or if they were responsive and easy to work with. You may also ask if they locked in the rate that they promised. Questions like these can give you a sense of whether the lender is worth your time—and your money.

    More Tips for First-Time Home Buyers

    Getting a home loan for the first time is exciting, but it also comes with lots of questions and a surprising number of hoops to jump through. Know what to expect when getting a first-time home buyers loan so you can be more prepared.

    Getting a Loan

    If you aren’t sure where to start when applying for a loan, two good places to check are any financial institutions you already have accounts with and your real estate agent. Your bank already knows a bit about your financial history and may be able to process applications quickly. Real estate agents deal with financing every day and often know which lenders are easier to work with or are experienced in certain situations, such as when you have self-employment income.

    What to Expect

    When you’re getting any mortgage loan, you’ll want to be patient and ready for surprises. There’s often much more to the home buying process than first-time buyers realize, and it’s not unusual for the lender to come back with a request for more financial information or the house to need some minor repairs before it qualifies for an FHA loan, for example. This roller coaster can be frustrating, but understanding that setbacks and delays are a normal part of the process can help alleviate some of the anxiety.

    Programs for First-Time Home Buyers

    First-time home buyer programs are designed to give you a little help along the way as you work toward purchasing your starter home. A few programs to check out include:

    Are First-Time Home Buyer Programs Worth It?

    These programs usually have very specific qualification criteria. However, if you do qualify, they can be worth the time and energy invested in finding and applying for them.

    Frequently Asked Questions About Buying a Home

    What do buyers look for in a real estate agent?
    How does the interest rate on a mortgage work?
    What’s the due diligence in real estate?
    Do first-time homebuyers need a down payment?
    What’s down payment assistance?
    What’s private mortgage insurance or PMI?
    Who pays for closing costs?

    What Do Buyers Look for in a Real Estate Agent?

    If you’re considering buying a home, you’re probably going to want some help. A real estate agent is a licensed professional who can provide guidance, resources and know-how. Typically, home buyers seek someone who is knowledgeable about the area they’re interested in and who can offer objective and helpful information.

    How Does the Interest Rate on a Mortgage Work?

    How the interest rate on a mortgage works depends on the type of loan. Fixed interest rates for fixed-rate mortgages stay in place for the life of the loan. So if interest rates drop, you can try to refinance at a lower rate, but you’ll never have to worry about your rate going up.

    With adjustable-rate mortgages or ARMs, your monthly payments change over time. Common ARMs have a fixed rate for a set period, after which the interest rate adjusts each year.

    For example, a 5-year ARM has a set rate for the first 5 years of the mortgage. It then switches to an adjustable rate for the remainder of the mortgage term. It’s advisable to check the index noted in the mortgage agreement for these adjustments.

    What’s the Due Diligence in Real Estate?

    As a first-time home buyer, you’ve probably heard the phrase, “Use your due diligence.” This means you should take caution—review documents, check your credit score, know your budget, shop the marketplace and have some reasonable idea of what type of financing you qualify for—before buying a home. Purchasing real estate is a risky investment, so the pressure is on you to do your homework beforehand.

    Do First-Time Home Buyers Need a Down Payment?

    Lenders typically prefer that home buyers have at least 20% of the purchase price as their down payment. However, many other options exist for people—especially if they’re first-time home buyers. An FHA loan, for example, only requires a 3.5% down payment, but you also have to pay for mortgage insurance to help offset the cost if your loan defaults.

    What’s Down Payment Assistance?

    In addition to FHA loans, there are also other state and local down payment assistance and loan programs available. Often, these assistance programs have requirements that are usually based on the price and location of the home. There are also maximum household income limits and gross monthly incomes for down payment assistance programs.

    What’s Private Mortgage Insurance or PMI?

    PMI is a type of mortgage insurance home buyers are often required to pay if they have a conventional loan and made a down payment of less than the traditional 20%. For those with a 15-year FHA loan, the lender can cancel the PMI payments once the debt for the home is paid down to 78% of the home’s total value.

    Who Pays for Closing Costs?

    Closing costs involve all the different fees and expenses that happen during the closing or settlement process of home buying. Most of the time, you’ll find that the buyer pays most of the closing costs involved with the transaction, but there are a few that the seller might be responsible for. Closing costs typically fall between 3-4% of the cost of the new home.

    These fees may include attorney fees, loan origination and credit report fees, inspection and appraisal fees, title search fees, and escrow deposits. Closing cost assistance may also be available for low-to-moderate income borrowers. These programs free up cash to put toward the down payment of the home instead.

    Do You Know Your Credit Score?

    Your credit score can have a huge impact on your mortgage and the interest rate you pay. If you don’t know your score, find out what it is. Mortgage lenders most often use your score when determining the credit risk associated with potential borrowers. Mortgage lenders also use the score to help determine the interest rate you pay on the loan.

    If your score is lower than you’d like, consider checking all three of your credit reports before applying for a mortgage. Once you obtain all three credit reports, review each. Dispute any errors or fraudulent activity you find, and make sure all the other details of the report are correct and accurate.

    You can also keep an eye on your credit and work toward a better financial future by signing up for ExtraCredit. This is a new program that lets you see what lenders see, monitor your credit and even earn rewards when you get approved for certain credit cards and loans.

    You Might Also Like

    Learn more about credit union mortgage options. Use this credit u... Read More

    December 13, 2023


    A white one story house sits on a green lawn with a "for sale" sign in front.
    Are you ready to buy a home? It’s an exciting—and stressful... Read More

    June 7, 2021


    multicolored house made of money with path of penny to illustrate second chance loans
    Brenda Woods didn’t want to move and leave the garden she h... Read More

    December 15, 2020