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6 First-Time Homebuyer Mistakes to Avoid

By Janet Siroto · October 06, 2022 · 7 minute read

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6 First-Time Homebuyer Mistakes to Avoid

Buying a home is a big deal, both emotionally and financially. For many people, homeownership is still an essential part of the American dream. And, of course, it’s the biggest investment some will ever make. With the median price of a house hitting $428,700 in mid-2022 (ka-ching), it’s not a purchase to be made lightly.

If you’re buying a home for the first time, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups as well as major missteps along the way.

That’s where this article comes in. It will educate you about the six most common first-time homebuyer mistakes and help you avoid them, including:

•   Not knowing how much house you can afford

•   Not shopping around for the best mortgage rate

•   Waiving an inspection because you’ve found your dream house.

First-Time Homebuyer Mistakes to Avoid

You’ve new to this homebuying business, so it’s worthwhile to educate yourself a bit about a few of the key moves to make the process go smoothly. Here, we’ll highlight the steps required for first-time homebuyers and help you avoid some common mistakes when buying a house.

1. Not Getting Your Mortgage Paperwork Moving

Before you start browsing online listings or get your heart set on a certain neighborhood, it might be a good idea to contact a lender (or, better yet, lenders) to show sellers that you are loan-worthy. If you don’t get your mortgage pre-qualification or even a pre-approval started, you’re unlikely to impress sellers as a serious bidder worth their consideration. You might just look like a person who enjoys poking around open houses for design ideas.

Nip that in the bud as follows:

•   Pre-qualification: You’ll provide basic information about your debt, income, assets, etc., and they will run a credit check and can give you an idea of how much you can borrow.

•   They will also share information on different types of loans — such as fixed-rate vs. variable-rate and 30-year vs. 15-year term — so you can see what best suits your financial situation and goals.

Remember, though: Mortgage pre-qualification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the pre-approval stage.

•   Pre-approval: This involves submitting additional income and asset documentation for a more in-depth review of your finances.

•   Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a pre-approval letter — and have a better idea of what your loan terms will be.

•   Mortgage pre-approval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.

2. Not Checking Out First-Time Homebuyer Programs

It’s wise to shop around for a few different mortgage quotes, but it can be a rookie mistake to overlook some great, government-sponsored programs that make homebuying more affordable. These include:

•   insurance (PMI), along with lower closing costs and a low interest rate.

•   FHA Loans : These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.

•   USDA Loans : These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.

•   VA Loans : These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment and no private mortgage.

3. Not Being Realistic About What You Can Afford

Once you know more about your mortgage pre-qualification, you can avoid the homebuying mistake of not knowing your home buying budget. The lender you choose will tell you the maximum amount you’re approved to borrow for a home, but you don’t have to use every penny of that money.

It’s important to keep other factors in mind as you determine the top price you’ll pay for your first home. If you don’t have your pricing guardrails in place, you could wind up overbidding and winding up with a too tight budget. Here, some ways set your sights realistically:

•   Ask yourself if your projected mortgage payment will fit comfortably into your monthly budget. You may have to make some tradeoffs — less travel, shopping, or dining out — if your new payment is higher than your current rent or loan payment, which you can figure out with a mortgage calculator.

•   Keep in mind that your mortgage probably isn’t the only new expense you’ll have to cover. If you’re buying a bigger place than your current rental, you will likely pay more for utilities. If the home has a lawn or pool, you might have to maintain them or pay someone else to do it. Or you may have a homeowner association (HOA) fee. Add those costs, gleaned from online sources and/or open houses, to your projected monthly budget (you can make a budget in Excel, use paper and pencil, or work with an app).

•   You’ll also have to account for the cost of homeowner’s insurance and paying your property taxes. You can get some idea of what those costs will be by searching online. There are insurance calculators, and most home listings give you the annual property taxes.

By doing the math, you’ll make sure you are ready to keep up with the monthly flow of expenses without dipping into savings or taking on credit card debt.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


4. Digging Too Deep for a Down Payment

In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase.

If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.

The same thing holds for taking money from your retirement savings. The IRS allows first-time homebuyers (which the IRS defines as not owning a primary residence in the past two years) to withdraw money from an IRA penalty-free . But this is capped at $10,000, and you’ll still pay federal and state income taxes on the money — and lose out on the growth you’d possibly have if you left those funds alone.

If you have a 401(k), you could take a loan against those funds, but again, there are consequences. There may be a provision in your plan that prohibits you from making additional contributions until the loan balance is repaid, so you’ll miss out on any growth, and you may be required to pay back the loan immediately if you quit or lose your job. If that happens, the money you borrowed will become fully taxable and may be subject to a 10% early withdrawal penalty.

There are benefits to putting 20% down on a home: You’ll avoid paying private mortgage insurance (PMI) and your monthly payments will be lower. But 20% isn’t required. For example, the minimum down payment required for a conventional loan is 3%, and for an FHA loan, it’s 3.5%. According to the National Association of Realtors, first-time buyers typically put down 7% of a home’s price in 2021.

With all the other costs you could be looking at as you move into a home — closing costs, utility deposits, moving expenses, decorating, and more — your down payment amount is something to consider if you want to avoid getting in over your head.

5. Passing on a Full Inspection

It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.

Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.

What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.

💡 Recommended: 7 Important Factors That Affect Property Value

6. Letting Your Emotions Get The Better of You

Homebuying can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.

You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their Realtor, especially during the negotiation process. You might disagree with your spouse or a co-buyer about priorities.

All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.

How to avoid such mistakes when buying a house? By recognizing that this will be a challenging and at times stressful process (especially because you are new to it), you can proceed more calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.

💡 Recommended: 31 Ways to Save for a Home

The Takeaway

Buying a home for the first time is an exciting moment, but one that takes some time and care to make sure you avoid rookie mistakes. You’ll want to do due diligence, not skip steps, or get carried away by emotion.

When you’re ready to line up your financing, the loan terms you get could be nearly as significant as your home’s location in terms of long-term satisfaction.

When shopping for a mortgage, you may want to compare different interest rates, the length of the loan, and other factors that make one lender a better fit than another.

With a SoFi mortgage loan, for example, the pre-qualification process is super simple, and our loans have competitive rates. What’s more, qualifying first-time homebuyers can put down as little as 3%, and work with our Mortgage Loan Officers who can coach you through the required steps.

If you’re thinking about buying a home, see what a SoFi mortgage could do for you.


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