Homeownership is usually exciting — it has long been the quintessential symbol of achievement. But buying your first home is not as easy as you may think, and the process can be very overwhelming.
For many first-time home buyers, purchasing a house fulfills a lifelong dream. But this dream can't be achieved without traveling down a road filled with potential potholes. Even after you've scrimped and saved enough for a nice down payment, a house is more than a home — it's a long-term financial investment and it's terrifyingly easy to overestimate what you can afford.
Here are the most common mistakes and how to avoid them.
1. Not Starting the Approval Process Early
Shopping for a home before getting pre-approval can be a big mistake. Getting approved upfront gives you a reliable price range to stay within, so you don't set your sights too high or take on more than you can handle. And as a bonus, being approved makes a buyer appear more serious to sellers, which can be helpful in bidding wars.
2. Looking at Only One Mortgage Rate Quote
Another lender could offer a deal that will save you money over the lifetime of the loan, so getting multiple quotes is the best way for buyers to choose the right lender and get a mortgage with the best possible rates and terms.
3. Not Working With a Real Estate Agent
Can you buy without a real estate agent? Yes. Should you? That answer may be more complicated. Real estate agents are experts. Having a professional in your corner can help ease anxiety and make the home buying process go more smoothly overall. And in most cases, it's free for homebuyers.
4. Buying More Home Than You Can Afford
Although an initial mortgage approval estimates how much house you can afford, this amount isn't always going to fit within your budget — there's often a difference between your debt-to-income ratio (DTI) and your monthly expenses as a whole. DTI doesn't account for groceries, utilities, and health insurance. Factor in all extra costs that come with being a homeowner, including closing costs, maintenance, and the potential for increased utility costs.
5. Not Checking Your Credit Report
Ignoring your credit score throughout the home buying process can lead to unchecked errors that could impact your loan approval or lead to less favorable rates. Lenders will recheck your credit just before the scheduled closing day, and changes in the credit report could mean changes to your loan.
6. Waiving a Home Inspection
A home inspection can be important for avoiding future problems. While some home buyers may choose to forego inspections — especially during bidding wars in a seller's market — home inspections and the safety they provide shouldn't be undervalued. After the inspection, you'll receive a report with any identified issues, and you can use this to negotiate repairs or a lower purchase price with the seller.
7. Spending All of Your Savings
Draining your savings can put you in a troublesome position when it comes time for other hidden or unexpected maintenance costs. Make sure you can afford the home and your mortgage without depleting your savings.
8. Not Saving Up Enough Money
There are a number of expenses to save for when buying a house:
- Down payment: Typically 3–20% of the purchase price. Some loans require as little as 0% down.
- Closing costs: Generally 1.5–6% of the purchase price on top of your down payment.
- Homeowners insurance: Required by most mortgage lenders.
- Property taxes: Typically included in your monthly mortgage payment.
- Home maintenance: Budget for upgrades and repairs after move-in.
- Moving costs: Don't forget the cost of packing up your old home.
- HOA fees: Common in planned neighborhoods and condominiums.
9. Not Making the Right Down Payment
Many believe the myth that you always need to put down 20%, but this isn't typically the case — as long as you're willing to pay for private mortgage insurance (PMI). PMI is typically required until you reach 20% equity in the home. The average down payment is actually around 6%, according to Attom Data Solutions.
10. Neglecting First-Time Home Buyer Programs
Many people don't realize that first-time home buyer programs and grants can help you afford to buy a home. Certain states and cities provide assistance programs — check your local government websites to see if you qualify.
11. Ignoring Government-Backed Loans
- FHA loans: Lower down payment and minimum credit score requirements
- VA loans: For qualifying veterans, active-duty service members, and surviving spouses
- USDA loans: For purchasing in rural areas
You might qualify for a mortgage type you've never considered before.
12. Not Researching the Neighborhood
The house matters, but so does the neighborhood. Research the school district, crime statistics, and proximity to amenities before committing to a sale.
13. Making Emotional Decisions
Buying a home is certainly an emotional milestone, but it's also a financial one. Make decisions based on fact, not emotion — this is likely the largest financial investment you'll make in your lifetime.
14. Rushing To Make an Offer
Your offer serves as a commitment to pay if the seller accepts it, so it's best to be 100% sure of your interest in the home before making an offer.
15. Waiting Too Long
On the flip side, taking too long to make an offer could cost you the home you really want. Narrow searches typically come with narrow results, so be careful not to be so picky that you prolong the process indefinitely.
Get in touch if you're starting your home search — I'll help you avoid these pitfalls and find the right home in Orange County.
