14 First-Time Homebuyer Mistakes and Tips to Avoid Them
There are many steps to follow when buying a home for the first time, and one misstep could cause delays — or even keep you from homeownership altogether. Below, we’ve highlighted several common first-time homebuyer mistakes along with some tips for how to avoid them for a smoother homebuying experience.
1. Getting a mortgage preapproval after your find a house
There’s nothing worse than finding your dream home, only to learn your credit score or income is too low to get the mortgage you need, or that you don’t have enough money to afford the down payment and closing costs.
Tip to avoid this mistake: Get preapproved for a mortgage first.
Even if your credit score is high, lenders also need to vet your income, down payment funds and total debt to determine if you qualify for a mortgage. Getting a mortgage preapproval before you start house hunting will keep you from visiting houses you don’t qualify for. In many cases, sellers won’t even accept a purchase offer unless it’s submitted with a preapproval letter.
2. Not checking your credit score before you get a mortgage preapproval
If you need a mortgage to buy a home, your credit score is one of the most important factors in the mortgage preapproval process. Your credit score shows the lender how well you’ve managed credit in the past, and gives them an idea of what programs you’ll qualify for. Your credit score also has the biggest impact on the interest rate you’re offered.
Tip to avoid this mistake: Know your credit scores and work to boost them.
Be sure to check all three credit bureaus (Equifax, Experian and TransUnion); lenders choose the second-highest score to determine whether you qualify for approval. If you apply for conventional financing, you’ll need a 780 score to get the best mortgage rate — the previous 740 benchmark was raised in May 2023. Keep credit card balances low and new credit accounts to a minimum, and pay everything on time to maximize your score.
3. Applying for the wrong loan program
Although first-time buyers often choose conventional loans to buy homes, the approval requirements are more strict than those of government-backed loan options. You’re setting yourself up for disappointment and potential loan denial if your credit and income don’t meet the minimum standards for the mortgage you apply for.
Tip to avoid this mistake: Check the basic loan program guidelines
Learn the minimum mortgage requirements for the most common loan types. Review the table below for highlights of standard loan types and who they’re best for.
4. Not shopping around with multiple lenders
You may be encouraged to choose a preferred lender by your real estate agent, friend or family member. However, LendingTree studies consistently show that homebuyers who compare rates with several mortgage companies save big at the closing table and over the life of their loan.
Tip to avoid this mistake: Gather loan estimates from three different types of mortgage companies.
If possible, include quotes from mortgage brokers, mortgage lenders or your local bank or credit union. Be sure to gather quotes on the same day — mortgage rates change daily.
5. Buying a house you can’t afford
There’s often a difference between how much a lender says you can afford and what your budget can manage. A lender’s home affordability calculation divides your total debt, including your new mortgage, by your before-tax income — a measure known as your debt-to-income (DTI) ratio. Some loan programs allow for approvals with a DTI ratio up to and even above 50%, but borrowing the maximum could leave you squeezed if you need to pay for a major repair, or experience a sudden job loss or income reduction.
Tip to avoid this mistake: Leave some extra room in your budget for the unexpected.
Lenders don’t consider your lifestyle when approving your for a loan. Family cell phone plans, cable and internet bills, car insurance, life insurance, tuition for private school or college education aren’t part of a lender analysis — even if they’re part of your monthly budget. And don’t forget: You’ll be paying for maintenance and repairs on your own home, so make sure you have room to stash cash for those rainy homeowner days.
6. Waiting to buy until you’ve saved for a 20% down payment
Surveys of first-time homebuyers consistently show they overestimate how much money they need for a down payment. First-timers typically spend between 6% and 7% of the sales price toward a down payment, according to data from the National Association of Realtors (NAR). Although a higher down payment equals a lower mortgage payment, the down payment for first-time homebuyers can be as low as 0% (which we’ve detailed in No. 3 above).
Tip to avoid this mistake: Consider different down payment options
Choose a down payment amount that gives you an affordable monthly payment without draining your savings. You can also ask for a gift from a family member or take out a loan against your 401(k) to boost your down payment contribution.
7. Not saving enough for both your down payment and closing costs
Mortgage closing costs typically range between 2% and 6% of your loan amount, and need to be paid in addition to your down payment. And you need to pay in cash — you can’t use borrowed money (like a cash advance from a credit card or a personal loan).
Tip to avoid this mistake: Budget for closing costs or ask the seller to pay them.
If your savings balance doesn’t include closing costs, you can ask the seller to pay for the costs, get a gift from a relative or talk to your lender about a no-closing-cost option.
8. Making large cash deposits before or during the loan process
If you’ve been stashing cash in a mattress, safe or jar, don’t wait until the last minute to deposit it. If you can’t document where the cash came from, your lender probably won’t allow you to use it toward your home purchase.
Tip to avoid this mistake: Deposit cash in a bank account at least three months before you apply for a mortgage.
Lenders will review the deposits made over the course of your last two bank statements. Once the money is “seasoned” for two months, which just means it’s been in the bank and stayed there for 60 days, you can use the cash for your down payment or closing costs without scrambling to document how you saved it up.
9. Not discussing gift fund requirements with donors ahead of time
If a benevolent family member offers to gift you money toward a home purchase, make sure they know they’ll have to provide financial documents to show where the gift funds are coming from. Relatives may back out if they think a lender is prying into their financial matters, so letting them know in advance will prevent any last-minute crises.
Tip to avoid this mistake: Provide a list of what your donor needs when you ask for the gift.
Upfront honesty is the best policy when it comes to gifting money. Here’s a list of what the donor will need if they agree to gift money toward your home purchase:
- A gift letter with their name, phone number and address
- Information about the bank account they’ll be gifting you money from
- A copy of their bank or asset statement showing they have the funds to gift you
- A copy of the paper trail showing funds leaving their account and going into yours
10. Changing jobs before or during the mortgage process
Your employment is verified right before closing, and any change to your job or income could create chaos before you close.
Tip to avoid this mistake: Don't rock the employment boat
Stick with your current job until closing, and let your lender know if there are any changes to your income.
11. Not being honest or accurate on your mortgage application
Lenders take mortgage fraud very seriously and use a variety of tools to vet the information you provide. Loan processors and underwriters also rely on the information on your application to approve your loan, and discrepancies or missing information could delay your loan — or even result in a loan denial.
Tip to avoid this mistake: Organize your financial paperwork before you complete a loan application.
Tell the whole truth, and nothing but the truth in each section of the application. Have paystubs, W-2s, bank statements and letters of explanation for any bumps in your credit, job or earnings history. Provide accurate employment contact numbers and documentation for any major credit issues like foreclosures or bankruptcies.
12. Forgetting to research the neighborhoods you want to live in
That dream home with all of the features you want may become a nightmare if it’s in a neighborhood clogged with morning commute traffic, populated by neighbors that don’t share your values or beliefs or that doesn’t offer highly rated schools for your children. Homeowners often overlook this important house hunting step.
Tip to avoid this mistake: Learn about the neighborhood before you make an offer.
Real estate agents typically have some basic information about the areas surrounding the homes you’re interested in, but you should still do a little extra digging. Check out the area at different parts of the day. How noisy is it on the weekends? Are there grocery stores nearby? Consider what’s important about where you live now, and make sure the new neighborhood can meet your needs.
13. Not interviewing different real estate agents
An experienced real estate agent can make the difference between buying a home at the best price that fits your needs, or being pressured into buying something you can’t afford or don’t really want. The agents at those open houses work for the seller, and if you walk in without an agent, they may want to represent you and the seller, which isn’t usually in your best interest. When you’re buying your first home, it’s best to hire an agent that specializes in working with first-time homebuyers.
Tip to avoid this mistake: Ask the following questions to several agents before you start house hunting:
- How much experience do you have selling homes in my area?
- How many years have you been in the real estate business?
- What special experience, training or certifications do you have for working with first-time homebuyers?
- Do you work mostly with buyers or sellers?
14. Skipping a home inspection
First-time homebuyers often confuse home inspections with home appraisals, but they’re two very different things. The purpose of a home appraisal is to tell the lender the home is in good condition and that it’s worth what you’re paying for it, based on similar home sales nearby. A home inspection, on the other hand, provides you with an in-depth report detailing all of the working parts of the home.
Tip to avoid this mistake: Get a home inspection, no matter how nice the home is.
It’s easy to get emotionally attached to a home when it has all of the bells and whistles you’re looking for, but you need to take a detailed look under the hood with a home inspection before you drive off into the homeownership sunset. Most purchase contracts have an inspection contingency that allows you to back out if you find problems the seller doesn’t want to fix or you don’t want to deal with.