Mistakes First-Time Home Buyers Should Avoid

Key Takeaways

• Use a mortgage affordability calculator to help you know what price range is affordable. 
• Ask questions and read the fine print.
• Make sure your credit report is accurate. 

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Buying a home is a big undertaking. First-time and even veteran home buyers are prone to missteps, but with this guide, you can avoid many of the most common homebuyer mistakes.

Not knowing how much house you can really afford

This is a critical first step. Without knowing how much house you can afford, you might waste time or worse, get into something that makes you feel stretched financially. For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment. Sometimes, it’s a good idea to aim low, remembering you’ll want to furnish your house once you buy it or buy new appliances. It’s always a good idea to avoid the “house poor” scenario many find themselves in with new homeownership, which is the equivalent of living paycheck to paycheck, it’s simply mortgage payment to mortgage payment.

How to avoid this home buying mistake

Use a mortgage affordability calculator to help you know what price range is affordable, what’s a stretch and what’s aggressive.

Not knowing what’s in a mortgage payment

Most mortgage companies include more than just principal and interest in their monthly payments. They require escrow accounts to cover taxes and homeowner’s insurance.

How to avoid this home buying mistake

Ask questions and read the fine print. Be sure to confirm exactly what your mortgage payment covers when quoted, are taxes included? Homeowner’s insurance? Don’t be afraid to ask these questions or you’ll be in for a surprise.

Making a down payment that is too small

You don’t have to make a 20% down payment when buying your first home, but some loan programs enable you to buy a home with a zero - 3.5% down payment, and sometimes homeowners have regrets with a smaller down payments because this usually means a higher monthly payment over the course of the loan.

How to avoid this home buying mistake

A bigger down payment lets you get a smaller mortgage, giving you more affordable monthly house payments. The downside is taking time to save more money while home prices and mortgage rates rise, which means it could become more difficult to buy the home you want. The most important thing is what works for you. Does your current down payment help you secure a payment you’re comfortable making each month? If so, then, it’s time to buy.

Not checking your credit report

Make sure your credit report is accurate. Mortgage lenders use these to determine whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve, or not at all.

How to avoid this home buying mistake

You may request a free credit report each year from each of the three main credit bureaus, and you may dispute any errors you find.

Using all your savings to buy the home

While you don’t want to make too small of a down payment, you also don’t want to be cash poor on move-in, especially if you are buying a previously owned home. It’s a given that there will be repairs you’ll have to pay for, and you want to be able to enjoy your new home without worrying about finances all the time.

How to avoid this home buying mistake

Save enough money for a down payment, for closing costs, moving expenses, and to take care of repairs that may come up. You can get estimates of these costs in advance from lenders and movers, so you’ll know what to budget, and leave yourself a nice cushion so that your early days in your new home are stress-free.

Skipping or skimping on a home inspection

Just because everything looks good on the outside, doesn’t mean there isn’t a leaky roof or some other issue you can’t see. It’s tempting to do a once-over and say everything looks good, but it’s not a good idea because once you sign those papers, those problems become yours. Before the inspection, they’re still the previous owner’s, and you can negotiate the cost of fixing them into your price. A home inspection costs a few hundred dollars, and it’s money well spent when you think of the possible issues they could find. Most realtors have a few home inspectors with whom they work and trust. Ask yours. Some homes even come with home warranties that will cover your home for a specific period of time after you buy. Even new homes are not exempt from needing warranties. Things break and you’re left holding the bag.

How to avoid this home buying mistake

Hire a licensed home inspector before you close the deal. You will be glad you did. Even if nothing comes up, you will have valuable information about your home that you can use for future repairs and remodel projects.

Getting just one rate quote

Shopping for a mortgage is like shopping for any other expensive item, rates vary from vendor to vendor as do fee amounts such as closing costs and discount points. According to the Consumer Financial Protection Bureau, almost half of borrowers don’t shop for a loan.

How to avoid this home buying mistake

Check with multiple mortgage lenders to see what rates they may offer you. Freddie Mac research indicates that borrowers could save an average of $1,500 over the life of the loan by getting one more rate quote, and an average of $3,000 if they get five rate quotes. For those concerned about inquiries on their credit report, all mortgage applications made within a 45-day window will count as just one credit inquiry. You may also want to get multiple quotes for homeowner’s insurance. Insurance on your property is a must have, and you can often roll it into your auto or some other existing insurance as a bundle with a savvy insurance agent.

Underestimating the cost of homeownership

Once you’ve calculated your mortgage payment you’re done, right? Wrong. Homeownership includes many additional expenses such as utilities, homeowner’s association dues (in some cases), and general upkeep like pest control and landscaping. Your mortgage company doesn’t take those into account, but you must.

How to avoid this home buying mistake

Work with a realtor who can tell you the neighborhood’s property tax and insurance costs. Ask the sellers for information about utility bills so you have an idea of how much they will cost after you move in.

Buying a home is a big endeavor, but it doesn’t have to be scary or intimidating. Follow a few simple guidelines, and you will come out on top having asked the right questions and having made the right decisions for you and your family. And when you’re ready to start securing your financing, Credit Union of Texas stands ready to help.