Purchasing a new home is overwhelming for many first-time buyers, but it doesn’t have to be that way.
Knowing the mistakes to avoid when buying a house will help you navigate the process from start to finish. I’ve purchased five properties over the years and have learned something new every time.
In this article, I’ll share those lessons and the seven mistakes that every homebuyer should avoid. Let’s dive into it!
1. Choosing the Wrong Real Estate Agent
A real estate agent guides you through the process of buying a home, so you need to find a good match.
The first place to start is by asking family and friends for recommendations, but you want more than a business card. Ask these questions about their experience with the real estate agent:
- Does the real estate agent know the area?
- How well did the real estate agent communicate with you?
- Did the real estate agent have a flexible schedule?
- How did negotiations with the seller go?
- Were there any delays or problems during the closing?
If you receive a good review from someone you know, contact the real estate agent and set up a time to meet before you agree to hire them as your agent. (Note: The seller typically pays the full commission, not the buyer.)
There is no shortage of real estate agents. If your first recommendation doesn’t work out, interview someone else.
The combination of an inexperienced buyer and an inexperienced real estate agent can lead to problems. If you’re a first-time buyer, try to find a real estate agent who has experience working with people who haven’t bought a home before.
2. Buying a House You Can’t Afford
The second mistake that I want to address is buying a home that’s not within your means.
When you’re getting pre-approved for a mortgage, you’ll receive a letter from your lender. It will tell you how much you’ll likely be able to borrow from the bank.
Don’t rely on the bank’s number. Determine your own housing budget based on your monthly spending.
You also want to consider the downpayment. For a conventional loan, it’s best to put 20% down to avoid private mortgage insurance (PMI). This is insurance that protects the lender, not the buyer.
If you can only put 5% or 10% down, you’ll have to pay PMI until you reach 20% equity.
How much does PMI cost? It varies depending on the lender. If you can’t put 20% down, make sure to ask the lender for the mortgage insurance rate.
Here’s a great tool from NerdWallet to help you estimate how much house you can afford.
3. Setting Unrealistic Expectations
Once you’ve been pre-approved for a mortgage and determined your budget, you’re ready to begin looking at homes. But you want to make sure that your expectations are realistic.
Before you view homes in-person, use sites like Zillow and Trulia to see what’s available in your desired location.
After entering the city or ZIP code, filter the results based on your budget and other factors like the number of bedrooms or bathrooms, square feet and year built.
From there, look at as many listings as possible to get a sense of what you can get for your money.
If you’re a first-time homebuyer, expect that you’ll need to make some compromises. Jot down a list of the things that are most important to you, your spouse and your family.
If you keep coming to a dead end, you may need to expand your home search to a different location.
4. Not Checking Your Credit Reports and Scores
Don’t get too far into the process of buying a home without checking your credit reports and scores.
You want to take a close look at your credit reports to make sure that there are no errors. Access a free credit report from each of the major bureaus at AnnualCreditReport.com.
Meanwhile, your credit card issuer or CreditKarma.com can help you monitor your credit score.
When you’re purchasing a home, aim for a FICO score of 760 or higher for the best interest rates. You can qualify for a loan with a lower score, but rates will be less favorable.
If you’re in striking distance of 760, try my tip of paying credit card bills every week. Here’s how and why it works.
5. Getting Only One Mortgage Quote
When it comes time to lock in a mortgage rate, only getting one quote can be a costly mistake.
You don’t have to obtain your mortgage from the same lender that gave you the pre-approval letter. You want to shop around for the best mortgage rate.
Typically, your real estate agent will provide the name of their recommended lender. That’s one person to call.
The benefit of choosing your real estate agent’s recommended mortgage lender is the personal relationship. Your agent may have a history of working well with this person.
In addition to your real estate agent’s recommended lender, I suggest that you get a total of three to five quotes from different banks, credit unions and online mortgage lenders like Rocket Mortgage.
I’ve always gone with the lowest rate. If a local lender provides the best rate, that’s even better.
From my experience, the loan approval process is the most frustrating part of purchasing a home. You may receive multiple emails with requests for paperwork — all with a sense of urgency.
You want to work with a mortgage loan officer who is organized, respectful of your time and responsive.
6. Skipping the Home Inspection
Once you’ve signed the contract on a new home, you’ll have the opportunity to inspect the property.
You want your real estate agent to write up the contract so that you have enough time to hire a home inspector and have them look for any major red flags. This usually costs $300 to $500.
With a home inspection contingency, you can cancel the contract during a limited window of time.
After the inspection, you’ll receive a report detailing everything that was found. Your real estate agent will help you negotiate with the seller to fix or offer credits for any issues.
If there is a major problem with the house, you may choose to walk away from the deal entirely.
My best advice is to adjust your schedule so that you can attend the inspection. Ask questions about anything the inspector identifies as a problem and point out issues that you observe.
I’ve had inspectors miss obvious things that I could have caught if I were more hands-on.
7. Not Understanding the Timeline
The process of buying a home is more complicated than it looks on HGTV. That’s why you want to partner with your real estate agent to understand the timeline.
Your contract will include details about home inspection, appraisal and financing contingencies, among others.
Once the contract is signed, sit down with your real estate agent and set calendar reminders for all of these contingencies so that you stay on track and nothing slips through the cracks.
Dealing with the mortgage lender will likely require the most work. Your agent can help you navigate this step.
From my experience, it’s not uncommon for a loan officer to ask for the same paperwork multiple times. I’m not sure why this happens. But if you save everything to Google Drive, it will be there to send again.
You want to respond to requests as quickly as possible to ensure an on-time closing.
Final Thought
Driving around to open houses is fun, but the process of buying a home can also be stressful. After all, there are many moving parts involved in this major financial decision.
Having a good team on your side, specifically a real estate agent and mortgage loan officer, is crucial.
This article has focused on seven mistakes to avoid and tips that I’ve picked up over the years. For a more comprehensive look at the process, see this guide from Zillow.