What first-time buyers get wrong most often

The biggest mistake is not checking your credit score and credit report before you start looking at houses. Lenders use your credit score to decide whether to lend to you and what interest rate you pay. If your score is lower than you think, you might not get approved, or you might pay thousands more over the life of the loan. You can get your credit report free once a year from annualcreditreport.com — the only official site for free reports. Check it for errors, and if you find any, dispute them with the credit bureau before you talk to a lender.

The second mistake is not saving enough for a down payment and closing costs. Many first-time buyers think they need 20 percent down, but programs exist that require 3 to 5 percent. However, closing costs — the fees for appraisal, title search, inspection, and lender charges — typically run 2 to 5 percent of the purchase price and come due at closing. If you buy a $300,000 house with 5 percent down, you need $15,000 for down payment plus another $6,000 to $15,000 for closing costs. Not budgeting for both means you either cannot close or you go into debt when ready.

The third mistake is getting pre-approved but not understanding what that means. Pre-approval is a lender's estimate of how much they might lend you, based on information you provided. It is not a may provide, and it is not a final loan offer. After you make an offer on a house, the lender will order an appraisal and verify your employment and income again. If the house appraises lower than the purchase price, or if your job situation changes, the lender can reduce the amount or deny the loan entirely.

Key Takeaways

  • Check your credit report and score before you start house hunting, because errors on your report can lower your score and cost you thousands in interest.
  • Budget for both down payment and closing costs — closing costs alone can run $6,000 to $15,000 on a typical home and are due at closing.
  • Pre-approval is an estimate, not a may provide; the lender can still deny or reduce the loan after the appraisal and employment verification.
  • Getting a home inspection is not optional — it can reveal structural problems, foundation issues, or system failures that cost tens of thousands to fix.
  • Avoid large purchases or new debt in the months before closing, because lenders check your credit and debt-to-income ratio again before funding the loan.

Skipping the home inspection to save money

A home inspection costs $300 to $500 and is one of the few things you can control in the buying process. Skipping it to save money is a false economy. An inspector walks through the house and checks the roof, foundation, plumbing, electrical system, HVAC, and appliances. They produce a written report that lists what is working, what is not, and what might fail soon. If the inspector finds a $15,000 roof problem or a foundation crack, you can renegotiate the price, ask the seller to fix it, or walk away before you own the problem.

Many first-time buyers also make the mistake of not reading the inspection report carefully or not asking the inspector questions. The report is yours to keep and to share with a contractor if you want a second opinion on a specific issue. If the inspector notes that the water heater is 12 years old, that is useful information — water heaters typically last 10 to 15 years, so you may need to replace it soon. Do not assume the seller will disclose major problems; in many states, sellers are only required to disclose what they actually know about.

Not understanding the difference between pre-approval and pre-qualification

Pre-qualification is informal. A lender asks you questions about your income, debts, and savings, and gives you a rough estimate of what you might borrow. No documents are verified. Pre-qualification takes minutes and means almost nothing.

Pre-approval requires you to submit pay stubs, tax returns, bank statements, and employment verification. The lender reviews these documents and pulls your credit report. Pre-approval is stronger — it shows a seller you are serious — but it is still not a final loan. Many buyers confuse pre-approval with a final loan commitment and are shocked when the lender asks for more information or reduces the loan amount after the appraisal comes back.

Making large purchases or taking on new debt before closing

After you are pre-approved but before you close, do not buy a car, take out a personal loan, or open new credit cards. Lenders pull your credit report again a few days before closing and verify your employment one more time. If your debt-to-income ratio has changed — meaning your monthly debt payments are now higher relative to your income — the lender can reduce the loan amount or deny it entirely. A car loan of $400 a month can be enough to disqualify you or lower your approved amount by $50,000 or more.

The same rule applies to co-signing a loan for someone else. If you co-sign, the debt counts as yours for the purposes of the debt-to-income calculation, even if someone else makes the payments. Wait until after closing to help anyone else borrow money.

Underestimating the true cost of homeownership

Your mortgage payment is not your only housing cost. Property taxes, homeowners insurance, and mortgage insurance (if you put down less than 20 percent) are usually rolled into your monthly payment. But you also pay for maintenance, repairs, utilities, and possibly HOA fees. A general rule is that maintenance and repairs cost 1 percent of the home's value per year — so on a $300,000 house, budget $3,000 a year for things like replacing the roof, fixing the furnace, or repairing the foundation.

Many first-time buyers stretch to buy the most expensive house they can get approved for, leaving no room in their budget for these costs. When the water heater fails or the roof leaks, they have no savings to cover it and end up taking on debt. A safer approach is to buy a house that costs 25 to 28 percent of your gross monthly income, leaving room for taxes, insurance, and maintenance.

Not shopping around for mortgage rates and terms

Different lenders offer different rates, even on the same day. The difference between a 6.5 percent rate and a 7 percent rate costs you tens of thousands of dollars over 30 years. Many first-time buyers get a pre-approval from one lender and assume that is the best they can do. In reality, you should get pre-approvals from at least three lenders — a bank, a credit union, and a mortgage broker — and compare not just the interest rate but also the closing costs and any fees.

You should also understand the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). A fixed-rate mortgage has the same interest rate for the entire loan term. An ARM has a lower rate for the first few years, then adjusts upward. ARMs are riskier because your payment can increase significantly after the initial period. For a first-time buyer, a fixed-rate mortgage is usually the safer choice.

Ignoring property taxes and insurance costs

Property taxes vary dramatically by location and can change from year to year. In some states, property taxes are 0.3 percent of home value annually; in others, they are 2 percent or higher. Before you make an offer, look up the property tax rate for that address and calculate what you will actually pay. A $300,000 house in a low-tax state might have annual property taxes of $900, while the same house in a high-tax state might cost $6,000 a year.

Homeowners insurance also varies by location, the age of the house, and the type of construction. If the house is in a flood zone or an area prone to hurricanes or earthquakes, insurance costs more or may be hard to find. Get an insurance quote before you make an offer, not after. If you cannot afford the insurance, you cannot afford the house.

Frequently Asked Questions

What should I do if I find an error on my credit report?

Contact the credit bureau that issued the report — Equifax, Experian, or TransUnion — and file a dispute in writing. Include a copy of the error and any supporting documents. The bureau has 30 days to investigate and must correct or remove the error if it is wrong. You can also place a fraud alert on your report if you suspect identity theft.

Can I negotiate the price down if the inspection finds problems?

Yes. After the inspection, you can ask the seller to lower the price, make repairs before closing, or credit you money at closing to cover repairs yourself. The seller can refuse, but many will negotiate rather than lose the sale. This is why the inspection period — usually 7 to 10 days — is so important.

What happens if the house appraises for less than the purchase price?

The lender will only lend based on the appraised value, not the purchase price. If you agreed to pay $300,000 but it appraises for $280,000, you either pay the $20,000 difference in cash, renegotiate the price with the seller, or walk away. This is why having savings beyond your down payment is critical.

Is it better to put down 20 percent to avoid mortgage insurance?

Mortgage insurance protects the lender if you default, and you pay for it. If you put down less than 20 percent, you will pay mortgage insurance until you reach 20 percent equity. However, waiting to save 20 percent might mean waiting years while rents rise. A 5 percent down payment with mortgage insurance might cost less overall than renting for five more years. Run the numbers for your situation.

Should I lock in my interest rate before closing?

Yes. Once you have a final loan offer, ask the lender to lock your rate. A rate lock guarantees your interest rate for a set period — usually 30 to 60 days — so if rates rise before closing, your rate does not change. If rates fall, some lenders allow one free rate reduction. Ask about this when you lock.