First-Time Home-Buyer Mistakes

You’ve dreamed of buying a house, and now it’s finally time. How exciting! You can already picture life in your new home, right? Maybe you imagine chasing your kiddos barefoot through the sprinkler on your lawn. Or having all your single friends over for parties. Or hosting Thanksgiving dinner for the first time.

Whatever your vision, you see your future home as a blessing. Well, we’ve got good news! Your home absolutely can be a blessing. But you do need to be aware of common first-time home-buyer mistakes so you can protect yourself and make sure your home doesn’t wind up becoming a curse.

Here are the 17 biggest home-buying mistakes and how to avoid them.

First-Time Home-Buyer Mistakes to Avoid

We’ll start with the biggest home-buying mistake. If you’re house shopping and you’re about to do this, stop right now. Don’t even finish reading this article—just get to work fixing this! Here it is:

1. Buying a House When You’re Already in Debt

Now, you might be thinking, Are you serious? Yes, we are. Debt weighs you down. If you’re trying to buy a home while you’re forking over hundreds (or thousands) of dollars every month on debt payments, you’ll run into one of two big problems.

Either it’ll take you forever to save a down payment, and you’ll wind up taking out a bigger mortgage so you can speed up the process, or you’ll struggle to make your mortgage payments on top of your student loans, car loans or credit card bills—putting you one emergency away from missing a house payment. Heck, you may even run into both of these problems!

Paying for a house when you’re in debt is like trying to run a marathon with weights chained to your legs. Making it to the finish line will be a struggle, and you’ll end up way behind on your other money goals—like retiring, traveling or paying for your kids to go to college debt-free—because all your income will be tied up in debt payments.

Instead, push pause on the house for now and dump the debt that’s holding you back.

 Home-Buying Mistakes About Mortgages

Now, some folks save up enough to pay cash for their house. That’s fantastic! But if you’re like most people, you’ll probably take out a mortgage. There’s nothing wrong with that, but you will need to avoid some common mortgage-related home-buying mistakes.

Here’s what they are, and what you can do instead.

2. Buying a House You Can’t Afford

Many first-time home buyers (and even repeat buyers) say, “Sure, this house costs more than I planned to spend. But it’s perfect! I’ll just take out a bigger mortgage.”

Bad idea! Taking on a bigger mortgage than you can afford is like dropping an atomic bomb on your finances. You’ll wipe out all your other money goals (say goodbye to that vacation you planned). You may even struggle to pay bills and put food on the table. That’s not what you want. When life happens, you need some wiggle room in your budget!

See how much house you can afford with our free mortgage calculator!

So before you look for your dream home, figure out how much house you can afford. Here’s how you know you can afford a particular house: Your monthly mortgage payment should be 25% or less of your take-home pay—including property taxes, homeowners insurance, private mortgage insurance (PMI) and HOA fees.

Try our mortgage calculator to see what your monthly payment could look like based on your budget.

3. Making Too Small of a Down Payment

Lenders often push home buyers (especially first-time buyers) toward mortgages that require little to nothing down. The problem is, you’ll pay thousands of dollars in extra interest and have a super high monthly payment.

Don’t make that home-buying mistake! Saving for a down payment is more work up front, but it’ll save you tons of money long term.

So how much should you save?

Ideally, you should put down 20% of your home’s total value. That may seem like a lot, but putting that much down means you won’t have to pay private mortgage insurance (PMI). Those monthly fees can add up quickly, and you’re only paying to protect the lender in case you stop making payments—it’s not insurance for you!

If you’re a first-time home buyer and you’re ready to buy—that means you’re debt-free and have a full emergency fund with 3–6 months’ worth of expenses—a 5–10% down payment is okay too, but be ready to pay PMI. And stay far away from FHA and VA loans and all their fees!

4. Getting the Wrong Mortgage

To put it bluntly, most types of mortgages suck. Some of the worst options are adjustable-rate mortgages (ARMs), FHA, VA and USDA loans. Lenders use these mortgages to get you into a house for as little up front as possible so you feel like you’re getting a good deal. Then, they can charge you tons of interest and fees.

And by the way, 30-year fixed-rate mortgages are also a bad idea. Why? Because even though they offer smaller monthly payments, they keep you in debt for an extra decade and a half and force you to pay tens of thousands in extra interest. Plus, the “discount” you get on your monthly payment isn’t even that big. Bad deal!

So, what’s the right kind of home loan? A 15-year fixed-rate conventional mortgage. You’ll pay less interest and fewer fees with a 15-year fixed-rate conventional loan than with any other mortgage. And you’ll pay off your home faster!

Oh, one more thing: Different lenders charge different interest rates and closing costs. So when you’re shopping for a mortgage, get multiple quotes to see who’ll give you the best deal.

5. Skipping Mortgage Preapproval

When you apply for a mortgage, lenders don’t just hand you the money. There’s a whole approval process, and you should go through it before you start shopping.

Why? Picture this: You find your dream house, so you rush to the lender and apply for a mortgage. Too late! The seller chooses another buyer who has a mortgage preapproval letter.

A mortgage preapproval letter tells the seller you’re serious and speeds up the paperwork. So getting preapproved (not just prequalified) gives you a leg up on the competition. Trust us, it’s worth the time!

Ready to get preapproved? Talk to our friends at Churchill Mortgage.

6. Assuming You Need a Credit Score to Get a Mortgage

Okay, this one will blow your mind: You don’t need a credit score to get a mortgage!

Seriously. You can buy a house without a credit score through a process called manual underwriting. That’s when a mortgage underwriter looks at your income, net worth, down payment and bill-paying history to decide how much you can afford to pay every month. Then they’ll create a custom mortgage quote based on your financial situation. No credit score required!

Besides, credit scores have nothing to do with how much money you make or how much you have saved . . . and those are the numbers that matter most. You don’t need a credit card payment to build your credit score to get a mortgage—you need cold, hard cash.

7. Asking Someone to Cosign Your Mortgage

Getting someone to cosign your mortgage is a serious home-buying mistake. In fact, never cosign anything. if you don’t believe us when we say it’s a bad idea, just ask Natty, one of our Facebook fans who shared her story with us:

In her early 20s, Natty wanted to be like her homeowning friends, so she bought her own place. Since she also had $100,000 in student loan debt, she needed her mom to cosign the mortgage for her.

Between her student loan payments and living expenses, Natty quickly realized she couldn’t afford the house. But she didn’t want to stick her mom with the mortgage. “I ended up having to work six days a week to afford the house,” she told us.

Natty eventually had to rent out her home and move back into her parents’ house. She was lucky—cosigning can ruin relationships and leave you with nowhere to go. After all, when you ask a loved one to cosign, you’re asking them to risk their own home and dreams so you can get a house before you can truly afford it. Talk about high stakes.

If you can’t buy a house without a cosigner, you can’t afford a house. And that’s okay. Just be patient and make a plan to get there as soon as you can. You’ll be so glad you protected your financial future (and your loved ones) by postponing your purchase.

8. Buying Mortgage Points

Your lender might suggest buying mortgage discount points to lower your interest rate. Don’t do it—it’s a trap!

With points, you pay part of your interest up front instead of over the life of the loan. But they typically aren’t worth it. Most buyers refinance, pay off or sell their homes before they reach their break-even point.

Rather than buy mortgage points, put that extra money toward your down payment to reduce your total loan amount. (That’ll cut down on interest too.) And a 15-year mortgage will also help you save on interest—they usually have lower rates.

You should also avoid paying for other types of mortgage interest rate buydowns, like a 3-2-1 buydown.

Home-Buying Mistakes While House Shopping

House shopping is a process, y’all! There’s a lot to learn, especially for first-time home buyers. Mistakes are bound to happen, but now you can skip the big ones!

9. Shopping Without a Real Estate Agent

With so many real estate apps and websites available, you might think you don’t need a real estate agent to buy a house. But real estate agents do a lot to help you, like:

• Getting inside info on your local housing market
• Looking for homes on databases you can’t access, like the Multiple Listing Service (MLS)
• Helping you make an offer, negotiate the home price, and file paperwork

See why nearly 90% of home buyers used a real estate pro last year?¹ Plus, the seller usually pays your agent’s commission, so you get all these benefits for free!

You need an experienced agent on your side as you navigate the home-buying process. But don’t just go with the first one you talk to. Try interviewing at least three agents, then pick the one you’re most comfortable with.

This will likely be the biggest purchase you make in your life, and you don’t want it in the hands of someone who acts like a slimy used-car salesman—or your Aunt Kim’s neighbor Chuck who just got his real-estate license.

You can connect with top-performing real estate agents in your local area through our free RamseyTrusted program.

10. Choosing Style Over Structure

Don’t let minor cosmetic issues scare you away from a good house. That’s a rookie home-buying mistake! Your new home may not look exactly how you imagined on closing day, but that’s okay.

When you know what to look for when buying a house, you can ignore small defects and focus on what really matters. For example, ugly paint, old carpet and bad landscaping are easy and fairly cheap to replace—so who cares?

Instead, watch out for things that are difficult or impossible to fix. If the floor plan won’t work for your family today, it’ll be even worse in five years. And what if the roof, foundation and plumbing all need repairs? Don’t waste money on a house with bad bones—and don’t get stuck with more renovations than you can afford.

11. Ignoring Resale Value

Your new home’s resale value may not seem important now, especially if you think it’s your forever home. But here’s the reality: Most homeowners only stay in their home for 10 years.² Then, they’re ready to sell.

So even if you think you’ll stay awhile, remember life and circumstances can change. You might find yourself in a situation where you need to sell, so imagine how that’ll play out.

Here are some tips for choosing a house that’s likely to grow in value:

• Buy in the bottom price range of the neighborhood. Homes in the bottom price range of a neighborhood are more likely to be worth more in the future and sell faster.
• Buy a home with a good floor plan that’s attractive from the street. You can pull out nasty carpet and replace ugly wallpaper, but there’s nothing you can do about a bad floor plan.
• Ask what developments are planned for the area. Some (like adding city water, sewer or gas lines) add value to your property. Others (like a highway cutting through the yard or a nearby trash dump—yuck!) lower property values.

12. Buying a Home Without an Inspection

A home inspection only costs a few hundred bucks, and it’s money well spent! An inspection gives you a thorough report on a home’s structure and electrical, plumbing, and heating and cooling systems to help you spot potential problems.

If the inspection turns up anything wacky, you can decide if you want to buy the home as is, negotiate with the seller to fix problems, reduce the price, or even walk away from the deal. But if you already bought the place? You’re likely stuck with it.

13. Sticking With a Bad Deal

When you’re house shopping, a sweet deal can quickly become a big mistake. Your home inspector could find mold. The seller could overcharge you. You may even go through a major life change—like losing a loved one or getting a new job in another town—that makes now a bad time to buy.

But when a deal turns sour, many people make a huge home-buying mistake: They stick with it anyway. They’re so afraid of not getting a house, they’ll buy the wrong house! Then they’re committed to a situation they don’t want to be in—for years. Walk away before that happens!

Walking away can be tough if you think you found the perfect home. But it’s not perfect if you’re losing sleep or feeling sick over it. That’s not first-time buyer’s nerves—that’s your body telling you to walk away from a bad deal!

Don’t let your dream home become a nightmare by sticking with a bad deal and overpaying for a house with problems. Use your power to walk away. Either the seller will negotiate and give you a better deal, or you can keep looking until you find a home you feel good about buying.

Home-Buying Mistakes at Closing and Beyond

14. Keeping Closing Costs and Moving Expenses Out of Your Budget

Your down payment isn’t your only home-buying expense. 

Closing costs can be anywhere from 2–7% of your home’s value.³ For a $300,000 home, that’s another $6,000–21,000 you’ll pay to third parties like the home inspector, appraiser and title attorney.

Now, some sellers may help cover closing costs—but others won’t. Be prepared to cover these costs yourself so you aren’t scrounging for the cash you need at closing.

Also, don’t forget moving expenses! The average cost to move less than 100 miles typically ranges from $900 to $2,400.⁴ Plan for these costs, and don’t cheat by stealing from your down payment amount or emergency fund. You’ll need those!

15. Taking on Credit While Closing

Why is it so important to have enough cash saved up to cover closing costs? Because you don’t want to take on any extra debt at the end of the buying process. That’s right—getting a second loan or using your credit card for closing costs is a big mistake.

For starters, it adds an extra payment on top of your house payment. Talk about a recipe for financial stress! And taking on extra debt while you’re closing changes your credit score, which sends your mortgage approval back to the drawing board and delays the closing process.

Now, like we talked about with mistake #6, we’d love it if you didn’t even have a credit score when you buy a house. But if you do have one, now’s not the time to change it with extra debt.

16. Forgetting About Title and Homeowners Insurance

Skipping title insurance is another nasty mistake when buying a house. Here’s why you need this stuff:

Imagine you close on a nice house. Two years later, the previous owner's crazy Cousin Eddie appears out of nowhere and claims they left the home to him in their will. Now there’s a big legal problem because it’s unclear who owns the house—you or Eddie! But if you have title insurance, the insurance company will pay Eddie to walk away, and you can keep enjoying your new home.

You’ll also need homeowners insurance to cover the costs of replacing your belongings and rebuilding your house after a disaster—in fact, mortgage lenders require it. But as a first-time home buyer, it’s easy to make mistakes if you don’t know what coverage to get.

Talk to a RamseyTrusted insurance pro who can help you find the right policy. They can also help you bundle your home and auto insurance to save money, as well as check your coverage each year to make sure it’s still enough.

17. Being Unprepared for Ongoing Homeownership Costs

After buying a house, you’ll have to pay certain costs as long as you live there—like property taxes and HOA fees. At first, you’ll likely pay these expenses as part of your mortgage. But after you pay your mortgage off, you’ll need to budget for these items separately.

Plus, it’s only a matter of time before your home needs repairs—especially if it’s older. So don’t make the mistake of spending all your savings when you buy a home. You’ll need some money left to fix stuff.

That’s why you need to save up an emergency fund of 3–6 months’ worth of your typical expenses before buying a house in addition to your down payment and closing costs. That way, you’ll be able to cover emergencies, like a busted water heater, without breaking a sweat (or using a credit card).

How to Buy a Home the Smart Way

Avoiding the biggest home-buying mistakes will save you thousands of dollars and thousands of headaches, but there’s more to buying a home the smart way. Get started with a step-by-step plan to making a smart home purchase in our free Home Buyers Guide.

But hey, since we like you, we’ll go ahead and tell you the biggest secret to home-buying success: Work with a top-notch RamseyTrusted real estate agent!

We recommend agents who are high performers in their industry on a mission to serve you with excellence—even if that means less money in their pockets. That’s why we call them RamseyTrusted.

Meet a RamseyTrusted real estate agent today!

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