Congratulations! You’ve decided to buy your first home. But as you start househunting, it's becoming clear that buying a house can be as daunting as it is exciting.
Before you start mapping out paint colors, envisioning backyard barbecues while sipping a cold one on your back porch, or picturing the cute little nook where you'll place that upcycled table, let's take a look at some common mistakes that first-time home buyers make and pitfalls to avoid.
Mistake #1: Not setting a realistic budget.
Before daydreaming over online home listings, take a moment to figure out what you can realistically afford. While it might feel a bit tedious, this crucial step helps avoid disappointment down the road. There are many online mortgage calculators available to provide a solid estimate of potential monthly payments based on income, debt, and the down payment.
These tools are a great starting point, but it’s also wise to begin the mortgage pre-qualifiction process. This way, a clear picture of your budget will emerge, preventing the temptation to fall in love with homes that are out of reach.
Also, for military members buying a home, keep in mind that every listing on MilitaryByOwner includes a BAH (Basic Allowance for Housing) calculator, so you can quickly determine if a particular home is in your price range or not. Go directly to MilitaryByOwner's BAH calculator here.
Get your finances in check with help from our free guide below.
Mistake #2: Not correcting credit report issues.
Get a free credit report at AnnualCreditReport.com, and then dispute any discrepancies. Be sure to complete this step before applying for home loan pre-approval or pre-qualification.
In our post, Preparing Your Finances for Buying a Home, financial expert Kate Horrell shares this advice for those finding mistakes on their credit report:
"Review your credit report carefully and dispute anything that is wrong. It’s estimated that one in five people have a confirmed mistake on their report, so don’t be surprised if you find errors. Use the process explained by the reporting agency to dispute each error. The credit bureau will return to the reporting company and ask for verification on the information. If they confirm it, and you still believe it to be inaccurate, you can submit a statement for your credit file."
Mistake #3: Not comparing mortgages.
It may be worth your time to do a little shopping around for a lender. While it can be time consuming to research and submit documents to each one, comparing rates, fees, and loan terms before landing on the best option can help you save money in the long run.
Some states offer grants to help first-time home buyers with down payments or closing costs. FHA and VA loans typically have a more streamlined process as well.
See this post, Home Financing Options for Military and Veteran Home Buyers, for a detailed breakdown of home financing options, then follow up with more info:
- Rebates and Incentives for Military Home Buyers
- Buying a Home in the Military? Start with This Guide
Pay attention to how responsive the lender is to your questions, as this can predict what's ahead when dealing with them. And consider whether you'll use a local lender or one more nationally known. Each approach has its pros and cons. Learn more about comparing options here: Home Financing: Is it Better to Use a Local or National Lender?.
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Mistake #4: Leading with emotions.
It’s easy to fall head over heels for a home at first sight, but doing so can make you forget all that careful planning you’ve done. It’s important to stick to your list of must-haves and keep those priorities in check.
Remember, features that are important to you, such as location, lot size, school district, and neighborhood, are non-negotiable. These are aspects of the property that can’t be changed, no matter how much charm or curb appeal the house has at first glance.
With the surge in home makeover shows in recent years, it's easy to forget that cosmetic issues such as ugly countertops, quirky paint colors, outdated carpeting, or an overgrown yard are details you can overlook to see the real "bones" of the place. As mentioned in our post, Avoid These Emotional Mistakes When Buying a Home:
"Are you guilty of having champagne taste on a beer budget? Where can you make compromises? Some of us have visions of renovated chef-inspired kitchens, unique loft spaces, or living areas that somehow marry industrial and vintage designs a la 'Fixer Upper' style, when the reality is that what we can actually afford is more along the lines of builder grade cabinets and a modest neighborhood. Compromise where you can to get the benefits that are most important to you, such as an easy commute or good schools for your kids."
Mistake #5: Making major financial decisions during the home buying process.
When you're in the middle of buying a home, it’s best to avoid any financial decisions that could jeopardize your stability, such as quitting your job, purchasing a car, or adding to your credit card debt.
These changes can raise red flags with your lender and, in the worst case, put a halt to the entire process. Keep your financial life as steady as possible during this time and avoid making big moves that could affect your approval or loan terms.
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Mistake #6: Waiving the home inspection.
While it might be tempting to cut corners and save a little money, skipping a home inspection is a risk you don’t want to take. Buyers typically cover paying for the inspection, but the small cost could save thousands in unexpected repairs down the road.
Make sure your offer is contingent on the house passing the inspection. If any issues are uncovered, this can be a powerful negotiation tool, allowing you to ask the seller to fix the problems or lower the price.
For military and veteran homebuyers, don’t forget that the property will also need to meet the Minimum Property Requirements (MPR) for VA Loan approval. Remember, the MPR and the home inspection are two distinct processes that both play a crucial role in ensuring your new home is a safe and sound investment.
Mistake #7: Underestimating the costs of owning a home.
In addition to your monthly mortgage payments, there are hidden costs to consider when it comes to homeownership. These include:
- Down payment
- Closing costs
- Property insurance
- Property taxes
- Ongoing homeowners' association dues
- Utilities
- Maintenance and upkeep
- Unforeseen repairs and appliance/system replacements
And, if you've taken on a true fixer-upper, be realistic about how much time and money you'll need to set aside.
A good rule of thumb is to budget 1 to 5% of your home’s value for maintenance each year. Even if you don’t use all of it in a given year, it’s wise to stash the extra funds away for future big-ticket items like roof repairs or appliance replacements that may crop up when you least expect them.
Not sure how much to allocate to your home maintenance budget? Porch.com has broken down the costs by location to help estimate your yearly home maintenance spending.
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What You Can Do RIGHT When Buying a Home
1. Establish a long-term goal.
Think beyond the immediate future. Are you planning to live in this home for years to come? Start a family? Or will you be moving on in a few years and rent it out? Considering where you see yourself five or ten years down the line will help guide your decision-making and keep you focused on your long-term goals.
2. Like, don't love.
It’s easy to get swept up in the excitement of house hunting and buying a home, but remember: if something doesn’t feel right or a deal falls through, be willing to walk away. Home buying is a big commitment, and you don’t want to rush into a decision just because you’re emotionally attached to a property.
3. Set a proper budget.
Be honest about what you can afford. Look at your current income, ongoing expenses, and any future debt obligations. Don’t forget to factor in other costs mentioned above, like maintenance, your down payment, and potential future plans.
4. Know your home financing options.
Once you've determined that your credit is in order, it's time to explore your mortgage options. Research the different types of loans available and figure out which one best suits your needs. For a deeper dive into loan choices, here's a great place to start: Understanding Different Types of Home Loans.
5) Be patient!
The home buying process can take longer than expected. While it's possible to find your dream home right away, it could also take weeks or even months of searching, negotiations, inspections, closing, and paperwork before you're holding those keys. It's a lot to juggle, but in the end, you'll be a homeowner!
Find even more help for your home buying journey with our free resource below.
