Home Buying » Home Buying Guides » 10 First-Time Homebuyer Mistakes You Must Avoid
Advertiser Disclosure

This website is an independent, advertising-supported comparison service. The product offers that appear on this site are from companies from which this website receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This website does not include all card companies or all card offers available in the marketplace. This website may use other proprietary factors to impact card offer listings on the website such as consumer selection or the likelihood of the applicant’s credit approval.

This allows us to maintain a full-time, editorial staff and work with finance experts you know and trust. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impacts any of the editorial content on The Smart Investor. While we work hard to provide accurate and up to date information that we think you will find relevant, The Smart Investor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof.

Learn more about how we review products and read our advertiser disclosure for how we make money. All products are presented without warranty.

10 First-Time Homebuyer Mistakes You Must Avoid

Unless you’ve done your homework and armed yourself with volumes of research, getting a mortgage may confuse you and lead you to make wrong choices.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. See how we make money.

Table Of Content

According to a 2020 report by the National Association of Realtors, first-time home buyers comprised 31% of all US homebuyers in 2020, which is a 2% drop from the previous year’s share of first time owners. The period between 2003 and 2005 recorded a uniform 40% share of first-time home buyers. Since 2011, the share of first-time home buyers has not risen beyond 40%.Chart: Share of First-Time Home Buyers Among all Home Buyers in the U.S.

Unless you’ve done your homework and armed yourself with volumes of research, getting a mortgage may confuse you and lead you to make wrong choices.  But you’re in luck:  you can have a smoother and less stressful experience by avoiding these common mistakes of first-time homebuyers:

The Steps to Buying a Home For the First Time

There are a number of steps involved in buying a home that apply even if you’re a first time buyer.

  • Once you have researched the local real estate listings and have familiarized yourself with the types of properties, the first step is to determine affordability. A good rule of thumb is to look for a home that is a maximum of five times your annual income. However, this only applies if you have a 20% down payment and moderate levels of debt.
  • The next step is to get mortgage pre approval. This is quite a straightforward process that involves providing some financial details to your lender. The lending team will evaluate your application and then give you a decision on how much you are approved to borrow.
  • With pre approval, you can then start serious home shopping. When you find a property you love, you can make an offer. Of course, you will need to properly evaluate the home to ensure that it meets your needs and you’ll need an inspection to ensure that it is viable for your mortgage deal.
  • You can then work with your banker to choose the right loan program. After the appraisal, the lender will coordinate the relevant paperwork and you can close the sale.  Once you sign all the paperwork, it usually takes a couple of days for loan funding and once the funds are released to the seller, you can move into your new home.

Top Mortgage Offers From Our Partners


  • Seamless mortgage solutions
  • Cash out refinance
  • 200+ locations nationwide

Academy Mortgage

  • #1-Rated Lender on Zillow
  • Independent mortgage lender
  • Plenty of loan programs


  • Compare No Obligation Mortgage Rates
  • Personalize Your Search
  • Refinance Loans | New Home Purchase Loans

Advertiser Disclosure

The product offers that appear on this site are from companies from which this website receives compensation. 

 1.  Failing to Understand The Full Cost 

You’ve probably grown accustomed to renting and budgeting for the monthly cost of renting which normally includes your rent, a few utilities, internet, and cable bills.  As a homeowner, your responsibilities will grow because you now have to take care of things that previously your landlord took care of.  This will include water, sewer and garbage bills, monthly HOAs (if you’re purchasing a condo unit), and the cost of lawn care.

Oh, let’s not forget the property taxes and homeowner’s insurance.  Did we mention maintenance cost already?  That will also be part of your out-of-pocket expenses.

We suggest that you set aside 1%-3% of the purchase price of your home every year for your repairs and maintenance budget.

  2.  Searching Before Prequalifying 

Many homebuyers have set themselves up for disappointment by doing this.  Spare yourself the heartache of not being able to afford the house you dream of by letting the bank prequalify you before you start house hunting.  Don’t go around picking a house price range and searching listing until you’ve talked to a lender

Take time to find out first what's the house you can realistically afford and what the monthly payment will be. Of course, you should include all the taxes and other fees of the bank.  When you know the amount that the bank will preapprove for you, you can make a realistic budget for your home search.

Anyone who has purchased a home will be aware that there are a number of steps in the buying process, but where do you start? In this chart, you can see 2020 NAR Trends data on the first steps taken during the home buying process. In 44% of cases, the process begins with online property searches. On the other hand, only 4% of respondents started by visiting open houses.

First Step Taken During the Home Buying Process

  3.  Setting Aside Professional Help

Admit it:  if you’re new to the homebuying game, there are a thousand things you have no idea of in the process.  You’ll really need a reputable real estate agent, a good loan officer, a veteran broker, and in some cases, a lawyer familiar with real estate laws.

Venturing into this process on your own, without a professional to guide you, is a very risky move. Here’s a simple rule to remember:  if you’re a first-time homebuyer, don’t try to deal directly with the listing agent.

Consider this:  if you are getting a divorce, would you go to your spouse’s attorney for help?  The principle is the same here.  If you go directly to a listing agent, they are only going to offer to you their listings.  A buyer’s agent would be of more help because he will show you more listings.

If you are hiring an agent from out of an ad or a website and without a referral from friends and family, ask him to provide you with references from previous buyers.  Do the same for loan officers or mortgage brokers.

It’s quite hard for first-time homebuyers because basically, they have no idea who they are dealing with.  They can’t just rely on first impressions.

It’s important to find a professional who will give you unbiased and independent advice.  Sometimes, this would mean getting the services of a lawyer.

  4.  Overlooking Hidden Costs

Yes, you have that monthly mortgage payment down pat but have you considered the cost of home maintenance, utilities, and property taxes?  If you are purchasing an older home, you should remember that you might be needing money for repairs and renovations.  While the total selling price will give you a fair idea of what you will pay for your house, you must look at all of the extra costs necessary to maintain your home and pay property taxes.

Your lender or realtor may not be able to give you accurate information about this matter so it is better to do your own research.  You may ask a home inspector for a list of existing or potential problems you may encounter in the near future.  Ask for quotes from renovation specialists or builders in the area to have an idea of potential updates and home improvement projects.  Also, don’t ignore moving costs and cost of extra furniture you might need to buy to fill up a larger living space.

  5.  Making Assumptions About The Down Payment

Many homebuyers think they need more money for a down payment that what is really necessary.  People often ask: “Can I get away with less than a 20% down payment?”.

The answer, surprisingly to some, is “Yes!.”

Sometimes, lenders will ask homebuyers to put in as little as 3% or 4% down payment. And here’s something you should remember:  as the market appreciates and the rates follow suit, your down payment money could depreciate with it.  In short, “Waiting for costs money.”

This chart shows that repeat buyers in the United States have consistently paid a higher down payment than new home owners. According to NAR research, new home owners paid at least 4% down payment, with the highest being 7% in 2018. Repeat buyers paid a down payment of at least 13%, and the highest payment was 16%.Chart: Down Payment of First-Time and Repeat Buyers in the U.S. 2010-2019

  6.  Spending Your Entire Budget

When a lender sends you a pre-approval or pre-qualification letter, they will normally indicate the maximum amount you can borrow.  Now, just because you have this maximum amount they can lend you doesn’t mean you have to max it out.

Lenders follow certain guidelines to determine what you can borrow, such as the 28/36 rule.

This rule says that the homeowner should spend no more than 28% of their gross monthly income on housing expenses, and no more than 36% on overall debt.  Keep in mind that buying a home also comes with material upfront costs, such as the down payment and closing costs. You’ll want to make sure that you have some money left for emergencies and other unexpected expenses after you close on your new house.

  7.  Thinking Short Term

It’s easy to lose yourself in the excitement of searching for a new home that you overlook some crucial bits of information about the neighborhood you would move to. For example, the kind of area where the neighborhood is, future developments in the area and the resale value of your home.  As a first-time homebuyer, the thought of selling your home in the near future might not occur to you.  But you should take that into account.  Buy your house with the possibility of reselling it with some ease should your plans change in five years.

One more thing:  don’t become obsessed with buying that charming or quirky house until you have some sort of financial stability and can comfortably afford the charm.

It is important to think about the long-term effects of your decision to buy that home. For example, if the neighborhood is undergoing some redevelopment, then your property could appreciate in the near future.  However, if you buy an older home in the hope that it will appreciate in value, you have to realize that your investment could be a risky move.

  8.  Letting Your Emotions Control Your Decisions

Unmistakably, buying a home can be a long and frustrating process.  These days, starter homes move fast and it’s common for first-time homebuyers to experience rejection on the first offers they send out.  During this situation, the tendency is to fall in love with a house that’s over your budget, or compete in a bidding war and end up paying more than what you’ve set as your limit.

It is normal to feel some excitement when you think you’ve found your house – but don’t put yourself in a compromising situation.

  9.  Not Researching Mortgage Lenders

Sure, you’d rather do something else than spend your time looking for a great mortgage lender but this is something you must do.  More so if you are a first-time homebuyer who has no idea how to go about it.  A seasoned mortgage lender will be able to help you set your goals and get a loan that’s within your budget.  What’s more, if you find a mortgage lender you can trust, you can feel more confident in their rates and their advise to protect your finances.

For a decision as life-changing as this, it is important that you deal with someone you can really trust.  So, it really helps if you can get referrals from friends and family – and ask the right questions.  For example, find out if the lender has the habit of surprising borrowers with hidden fees.

Is he easy to work with and responsive to the needs of his customers?  Honesty is also important, so check if they made good with the locked rate that they promised.  These questions will help you get a sense of whether you can bet your time and money with a particular lender.

  10.  Assuming You Won’t Qualify

Many borrowers lose heart when they realize that they can’t come up with the 20% down payment for their dream house.  What they don’t know is, you could get a really nice house with the kind of money you are putting down in rent every month.  Try punching in some numbers on an affordability calculator to get a better sense of what you need – and how much you can afford.  Better yet, talk directly to a lender to find out exactly what you can qualify for.

For the majority, a 20% down payment is ideal but you don’t necessarily need to put in that big a down payment to buy a house.  You can look for loan programs that cater to first-time homebuyers such as the FHA loan.

Here, you can get purchase a house for as little as 3.5% down payment.  If you look really hard, you might find some conventional lenders that will allow only 3% down payment.  And some special programs, such as VA loans for US veterans and military members and the USDA loans for rural areas, do not require a down payment at all.

First-Time Homebuyer Mistakes You Must Avoid

First Time Home Buyer Tips

The process of buying a home for the first time can be very daunting, but there are some tips to make the process easier.

  • Start Saving Early: With a down payment, closing costs and other expenses to consider when you buy a home, it is a good idea to start saving as early as possible. Additionally, a track record of savings will also help your credit record, and prove to yourself that you have sufficient disposable income to pay for your new home.
  • Strengthen Your Credit: Mortgage lenders will carefully scrutinize your credit report before approving your home loan, so it is important that your credit is in the best possible shape. Request a copy of your credit report and check for any errors, then work on your credit utilization ratio, and payment history to improve your overall score.
  • Research Your Mortgage Options: Finally, take the time to research all your mortgage options to determine the one that is best suited to your requirements and circumstances.
  • Don't Ignore Preapproval – It can be tempting to start looking for the perfect house right away, especially if this is your first time. It's a good idea to get a mortgage preapproval before you start looking at properties.
  • Stay Within Your Budget – Your motivation for buying a home is most likely emotional. You may want to feel safe, have the freedom to express yourself through your home, or have a vision for your ideal lifestyle. Many first-time home buyers become overly invested in a home only to discover that they can't get a loan for it or that it has major flaws.
  • Determine your Needs – You may have always wished for a two-story home with a grand staircase and a large yard, but have you thought about what you truly require in a home? Where you are now and where you intend to go in the future may not be the same as where you imagined you would be when you first dreamed of purchasing a home.
  • Explore Loan Options – Did you know there are different kinds of mortgage loans? The type of loan you choose will affect your down payment, the type of home you can buy, and other factors. Here are a few examples of more well-known types:

Bottom Line

Buying your first home can give you stress and overwhelm you – plus it exposes you to a lot of potential pitfalls.  If you become aware of those issues ahead of time, you can avoid the mistakes and go about with some level of confidence.  For many people, a home is probably the biggest purchase they will ever make in their life.  But if you have adequately prepared for the task, it need not be the most difficult one.


The most important thing to know when buying a home for the first time is that all of your loan funding depends on the appraisal. If the appraiser values the property lower than the selling price, there are issues with the home or it does not meet other lender requirements then the whole deal can fall through.

Although it may be possible to renegotiate the sale with the seller, it is crucial that your lender is comfortable with the property details to release the funds.

There are a number of programs designed to offer a variety of first time home buyer benefits. These can include forgivable loans for your closing costs, federal tax credits, down payment assistance, low or no down payment loans.

However, some of these programs do have income limits. So, if you’re applying for local, state or federal assistance, you may not qualify if you are in a higher income bracket.

A realtor can be an invaluable resource when you’re buying a new home, particularly when it's your first time through the home buying process. Your realtor can not only help you to find your new home, but also ensure the sales contract does not leave you out of pocket and guide you through the Escrow process. A good realtor can also help you to connect with mortgage lenders and assist with the home inspection.

Since your realtor is your advocate, you can rely on their advice and guidance while you familiarize yourself with the process of buying your new home.

As the name suggests, a first time home buyer is a buyer who has not previously purchased a primary residence. First time buyers are quite appealing to sellers as there is no property chain.

You are not relying on selling a property to fund buying your new home. This minimizes the delays and allows your seller to confirm their purchase more easily.

Yes, a first time home buyer can purchase a foreclosure home, providing it meets the lender property requirements. This means that it will need to be in good enough condition to pass a home inspection report and any other stipulations in your mortgage contract.

So, shopping with the bank for foreclosure properties could be a great way to purchase more home for your money. You may be able to obtain a discount on the selling price, which will reduce your mortgage needs, making it easier to qualify.

According to the Department of Housing and Urban Development, there are some situations where you can qualify as a first time home buyer again. The first is that you have not owned a primary residence for at least three years. You can also qualify as a first time buyer if you initially bought a home with a spouse and are now a single parent buying a home on your own.

You can also qualify as a first time buyer twice according to your property. If the principal residence is not attached to a foundation permanently or fails to meet local or state compliance regulations, you could be a first time buyer again.