7 First-Time Home Buyer Mistakes to Avoid at All Costs

Written by Jeremiah ClayUpdated: 9th Mar 2022
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

If you are a first-time homebuyer, navigating the home buying process can feel a bit complicated. Even seasoned homeowners can get confused by all the steps involved when buying a new home.

Before you begin your home buying journey, it’s important to understand the common pitfalls that some buyers find themselves in to ensure a smooth experience. While missteps do occasionally occur, you don’t want an avoidable mistake to be the reason you lose out on your dream home.

First-time homebuyers still make up almost a third of all homebuyers.2 Make sure you’re setting yourself up for success by avoiding mistakes that other homebuyers fall privy to.

Common First-Time Homebuyer Mistakes

Let’s face it; you’re not a robot. Nobody expects you to know the entire home buying process your first time around. Even real estate and mortgage professionals stumble and make mistakes.

However, one key to completing your first successful home purchase is identifying common homebuyer mistakes before you get too far into the process. Here are a few of the most common home-buying mistakes that are easily avoidable and could save you thousands.

>> More: Tips for First-Time Home Buyers

#1. Buying a Home Outside Your Budget

Houses can sell at various price points, so it’s always important to figure out how much home you can afford before you begin your property search.

One of the biggest mistakes you can make as a new buyer is buying a home that you cannot afford. Trying to buy a home outside your budget can have a lot of unintended consequences.

For starters, you might waste your time looking at homes that can’t be supported by your budget or have features that you don’t need. While you are spending this time and energy looking at the wrong homes, you better believe competing buyers are scooping up the right ones.

Another misstep is that if you buy a home outside your budget, it could put added stress on your financial well-being. That’s why it’s important to figure out how much home you can afford and how much you are willing to spend before you start your search.

A good rule to live by is the 30% rule, which states that your total housing expense shouldn’t exceed more than 30% of your monthly gross income.1 Although more conservative financial experts argue 28% is a better benchmark, using this general guideline (and sticking to it) will help you avoid the pitfalls of overspending.

Another easy way to get your budget under control is to use an affordability calculator to see how much you can spend concerning its monthly cost.

>> More: How to Apply for a Mortgage

#2. Not Hiring the Right Real Estate Agent

The home buying process is complex, intimidating, and unforgiving. That’s why you need experts in your corner to help support you throughout the buying process.

Many first-time homebuyers try to go at it alone and fail. Not hiring a real estate agent is a common mistake that could spell doom for your purchase right from the get-go.

Not only can the right realtor navigate you through the entire purchase process, but they have the market insight to discuss local market trends and help you narrow your property search.

A real estate agent also acts as an advocate for you, helping to negotiate the best pricing and coordinate key changes throughout the process to ensure a smooth closing.

Without a realtor, you run the risk of overpaying or not adding a real estate contingency to the contract that could save you from buying a home that turned out to be a lemon. While their services aren’t free, you will be thankful to have a realtor by your side as you navigate your home buying journey.

#3. Searching For Homes Without a Pre-Approval

According to the National Association of Realtors, 87% of buyers use some sort of financing when buying their home.2 For first-time home buyers, this number is actually a bit higher, meaning it’s important to know you can qualify for financing before you start looking for a new home.

Many first-time homebuyers make the mistake of looking at homes before getting pre-approved for a mortgage loan. Obtaining a pre-approval letter from your lender accomplishes a lot of things.

For starters, being pre-approved indicates to sellers that you are a motivated buyer. It also shows that you have taken the time to submit documentation to a lender who has done a cursory review of your finances and feels confident you can qualify for a new mortgage loan.

Another reason it’s smart to get pre-approved early in the home buying process is because once you do find a property you want to buy, you want to be able to act fast by submitting an offer.

Most sellers want to see you have been pre-approved before accepting an offer. If you have to spend time waiting for a pre-approval decision from your online mortgage lender, the home could already be scooped up by a competing buyer.

#4. Opening New Debt While Under Contract

You were smart in getting a pre-approval letter from your lender before you made an offer to purchase your first home. But being pre-approved and actually approved for a new mortgage are two completely different things.

To approve your mortgage application, mortgage lenders underwriteyour file by analyzing your financial and credit profile with intense scrutiny. One specific metric they use to measure your ability to repay the loan is your debt-to-income ratio (DTI).

Your DTI accounts for your outstanding monthly credit obligations in relation to your gross monthly income. If your ratios are on the cusp of qualifying, any added payment could impact your ability to qualify for financing.

While buying your first home can be exciting, don’t make the mistake of opening new credit to finance the purchase of new furnishing, moving costs, etc. Lenders will question any new credit inquiry that comes up on your credit report.

While you may think that an extra 5% off at the retail store you frequent is a nice benefit, your lender may need to account for the added payment in your DTI calculation. You don’t want a new sofa or television to be the reason you lose out on your dream home.

#5. Not Comparing Mortgage Options

Whether it’s a buyer’s market or a seller’s market, never make the mistake of only researching mortgage options from one lender. Compare government home loans and conventional mortgages to cover your basis. And while it may seem overwhelming, here are a handful of the different mortgage options you should research:

It’s important to compare mortgage options with multiple lenders so that you don’t overpay for your new home. A straightforward way to compare deals is to look at the annual percentage rate (APR).

Unlike the interest rate, APR is a better representation of the costs to borrow money because it accounts for things such as the interest rate, mortgage points, and other fees or charges.3

Another reason it’s always important to shop different mortgage lenders is because some lenders might offer more advantageous loan programs that other lenders simply can’t or choose not to offer.

Some programs could have lower minimum down payment requirements, cheaper closing costs, or might have less restrictive credit qualifying criteria. Spending some time to know all your financing options could make your first home purchase significantly easier.

>> More: Best Mortgage Lenders

#6. Forgetting to Account for Closing Costs

Home financing can be a little tricky. One important thing to understand is that a mortgage has many costs outside the interest you have to pay.

When you are working through your budget to see what kind of mortgage you can afford, don’t forget to factor other costs into your calculations. Specifically, you want to ensure you have enough saved up to cover your down payment and closing costs.

Closing costs can vary depending on where you live and what lender you choose. Recent data found that in 2020, the national average for closing costs on a single-family home was $6,044.4

These costs could include application and processing fees, an appraisal inspection, prepaid interest, credit, and flood certification reports, among others.

#7. Not Researching Down Payment Assistance Programs

A home is a long-term investment, one that doesn’t come cheap. In fact, 11% of all buyers find that saving up for a down payment is the hardest part of the home buying process.2

If you have a nice nest egg saved up and earmarked for your first home purchase, that is amazing! However, don’t make the mistake of leaving money on the table.

There are several down payment assistance programs available that can be used to help reduce your out-of-pocket costs and make buying a home much more achievable.

Many state and local municipalities offer down payment assistance to qualified borrowers. At the same time, the type of assistance can be structured in various ways. Assistance can be in the form of a grant or even a silent second mortgage.

One of the best ways to figure out if there are programs in your area is by talking to your lender. Don’t make the mistake of assuming you won’t qualify just because you have a few bucks tucked away.

Down payment assistance can help in various ways, including covering qualified closing costs, helping reduce your mortgage payment, and making your offer look more attractive to potential sellers.

Bottom Line: First-Time Homebuyer Mistakes

Buying your first home can be an exciting experience if you take some time to prepare and understand the home buying process. Many first-time homebuyers overlook a lot of key features when deciding to buy a home that can cost you big if you are not careful.

While juggling affordability, credit, and financing issues aren’t always easy, doing your homework, crunching the numbers, and using your resources will allow you to avoid several common pitfalls that other first-time buyers find themselves in.

Keep Reading:


1. Leonhardt, M. (2021, July 15). Use the 30% and 28/36 rules to figure out how much you should be spending on housing. CNBC. Retrieved March 9, 2022, from https://www.cnbc.com/2021/07/14/how-much-of-your-income-you-should-spend-on-housing.html

2. National Association of Realtors Research Group. (2021, March). 2021 Home Buyers and Sellers Generational Trends Report. NAR. https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf

3. Consumer Financial Protection Bureau (CFPB). (2020, September 4). What is the difference between a mortgage interest rate and an APR? Consumer Financial Protection Bureau. Retrieved March 9, 2022, from https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-mortgage-interest-rate-and-an-apr-en-135/

4. Marino, V. (2021, February 20). A Quick Guide to Closing Costs. The New York Times. Retrieved March 9, 2022, from https://www.nytimes.com/2021/02/19/realestate/a-quick-guide-to-closing-costs.html

Jeremiah Clay
Jeremiah Clay

Jeremiah Clay is a leading mortgage expert who has spent his career helping make homeownership a reality for new and existing homebuyers. Father of two, he works as a NAMU Certified Mortgage Underwriter and Team Lead, having over ten years of experience in the financial services industry. Jeremiah received his MBA in 2017 from Loyola University Chicago and has been creating real estate and mortgage-related content for nearly half a decade. His areas of focus include mortgages, real estate investing, first-time homebuyers, and underlying underwriting principles.