Buying a house is one of the biggest decisions you’ll ever make, so you may as well take your time with it. From not getting preapproved early on to skipping inspections, first-time homebuyers make all sorts of mistakes.
But you don’t. In this article, we’ll show you what the worst mistakes are and how you can avoid them.
- Not Getting Preapproved Before Searching for a House
Hunting for a home before you know how much you can borrow can lead to disappointment. The housing market continues to be competitive, and many sellers prefer preapproved buyers for obvious reasons.
Equipped with your preapproval papers, you can go house-searching with more confidence. And, of course, you’ll be able to narrow down your options to a reasonable price range.
Pro tip: Get preapproved before you start looking for houses to buy. It’s going to make the entire process easier and safeguard you from disillusion.
- Not Comparing Multiple Lenders
Settling for the first offer a lender makes you is one of the biggest mortgage mistakes you can make. Don’t rush to make a deal. If the offer appears too good to be true, it probably is.
Finding a good mortgage is not a lottery—it’s a process. The more time and energy you invest in understanding your options and comparing lenders, the better the deal you’ll make.
Pro tip: Shop around to explore all your options. Be wary of mortgage brokers that handle only a limited number of lenders. You may be missing out on some good offers.
- Focusing on the Maximum Amount of Loan You Can Afford
Don’t put the cart before the horse. Looking to maximize your loan amount is one of the main reasons why people lose their mortgaged homes. The temptation to maximize your loan is always there, especially if you happen to come across a seemingly spectacular house that’s a bit above your price range.
But over time, it’s going to put a strain on your finances. It may even turn your mortgage into a burden.
Pro tip: Aim for a monthly payment you can comfortably afford. Remember that your credit report doesn’t cover all your financial obligations, nor does it cover contingencies—you need to create a financial cushion around your monthly payments to stay safe.
- Not Planning Your Mortgage Well Ahead of Time
Planning your mortgage long before you get preapproved gives you the opportunity to improve your credit, compare more offers from more lenders, and save more money for a down payment and closing costs. While you may be able to secure a mortgage without any of these provisions, over time it may cost you dearly.
By giving yourself at least 6 to 12 months to prepare your mortgage application, you can reduce long-term costs significantly. Repaying poor credit can take years, so even if you delay your application now, you still save time.
Pro tip: Think of getting a mortgage as entering a serious long-term relationship with a financial institution. You don’t want to rush any part of the process. Give yourself at least 6 months to understand where you stand financially, set clear goals, and improve your credit score.
- Requesting Credit Before or During the Mortgage Application
Lenders will recheck your credit score before officially closing your application and granting your loan. Requesting a new credit card or loan in the months preceding your application and up to before the mortgage closing could endanger your application.
Some people commit this mistake because they don’t know the impact that credit requests can have on their mortgage application. But now you do.
Pro tip: If you need credit, get it well ahead of submitting your mortgage application. For extra safety, don’t make large purchases on existing credit. A good rule of thumb is to pay balances to below 30% of your credit limit.
- Believing You Always Need a 20% Down Payment
Having a 20% down payment is great, but you can still get a good mortgage without it. A large down payment is becoming something of a myth today when few first-time homebuyers can afford to put that much money aside.
According to the National Association of Realtors, the median down payment in 2023 was 19% for all buyers and just 8% for first-time buyers! The industry has changed—don’t let the 20% myth keep you from exploring all your options.
Federal Housing Administration loans, for example, require only 3.5% as a down payment. As a first-time buyer, you may qualify for certain loans that don’t even require a down payment.
Pro tip: Don’t wait to build a 20% down payment before looking for a mortgage. While you should still save money for a down payment, don’t let it hold you down from exploring all your financing options.
- Not Calculating All the Costs of Homeownership
In the excitement of the chase for a good mortgage, it’s easy to overlook the full costs of owning a home. But you have to add up all the numbers to get a clear picture of where you stand.
In addition to the mortgage itself, you can expect to pay hazard insurance, homeowners insurance, property taxes, maintenance and repair costs, utilities, and more. You need to factor all these in.
Pro tip: Calculate the complete costs of homeownership and set aside around 2% of the house price every year for maintenance and repairs alone. Remember that the mortgage is just one expense—you need to cope with the others too.
- Skipping a Complete Inspection Before the Sale
You’ve viewed the property and it looks in order—that’s great. But things can happen between the viewing and the mortgage closing. Even if the seller isn’t doing any repairs at your request, it’s still wise to see the property one last time before the closing.
Pro tip: Look for potential problems with the flooring, HVAC system, electrical system, water drainage, roofing, and windows. These are some of the costlier repairs—the others you can fix in time.
Final Thoughts
Don’t rush it. Don’t miscalculate the costs of homeownership. Don’t take mortgage myths for granted, such as the 20% down payment. And last but not least, don’t neglect to explore all your mortgage options. These crucial errors that first-time homebuyers often make can come back to haunt you.
Having an experienced mortgage professional on your side can help you avoid all these mistakes. So, once you know that you want a mortgage, look for someone who can assist you through the entire process. You’ll never look back.
