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 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 12 biggest home-buying mistakes and how to avoid them.

Common First-Time Home-Buyer Mistakes

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

Here’s the deal: Debt weighs you down. And 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 three big problems.

Either it’ll take you forever to save a down payment, 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 and credit card bills—putting you one emergency away from missing a house payment. Heck, you may even run into all of those 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.

2. Underestimating Homeownership Costs

Owning a home is expensive! After buying a house, you’ll have to pay certain bills as long as you live there—like property taxes and HOA fees. Plus, your utility bill will likely go up if you’re upsizing from an apartment. That’s even more reason to get out of debt before you buy.

And it’s only a matter of time before your home needs repairs. 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 when it breaks.

That’s why you should save up an emergency fund of 3–6 months 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 without breaking a sweat (or using a credit card).

3. Buying a House You Can’t Afford

Before you look for your dream home, figure out how much house you can afford. 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.

4. Making Too Small of a Down Payment

A small down payment leads to bigger monthly payments and more debt overall. Bad plan!

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

Instead, aim to 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 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, 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!

5. Getting the Wrong Mortgage

To put it bluntly, most types of mortgages suck. Here are some of the worst options:

• Adjustable-rate mortgages (ARMs): This type of mortgage reels you in with a low interest rate. But in most cases, your rate will increase down the road—sometimes by a lot.
• Federal Housing Administration (FHA) loans: Designed for folks who can’t make a big enough down payment for a conventional loan, these are loaded with dumb fees.
• Department of Veterans Affairs (VA) loans: Similar to FHA loans, VA loans involve a bunch of fees that people with traditional mortgages don’t have to pay.
• U.S. Department of Agriculture (USDA) loans: Moving to a rural area? Then a USDA loan may seem like a good idea. But think again—because their repayment plans often lead to borrowers going underwater on their homes.
• 30-year traditional mortgages: These offer smaller monthly payments, but keep you in debt for an extra decade and a half and force you to pay tens of thousands in extra interest.

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!

6. 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? 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.

7. 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
• Notifying you when homes you might like hit the market
• Helping you make an offer, negotiate the home price, and file paperwork

Don’t just go with the first agent you talk to, though. Try interviewing at least three agents, then pick the one you’re most comfortable with. You don’t want to put such a big transaction 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.

8. Making Emotional Decisions

Picture this: You go to an open house and quickly fall in love with the home. It’s got the perfect backyard for the dog, enough bedrooms for each of the kids, and those granite countertops you’ve always dreamed of.

But when you sit down to do the math, you realize it’s out of your budget. So you start to make some compromises in your head. Maybe we should increase our budget. Hey, we can’t afford this home now, but we’ll surely get raises pretty soon. It’ll be worth the extra financial stress.

Stop! A thought process like that is a recipe for some major money problems down the road.

We get it: Buying a home can be an emotional journey. But you’ve got to stick to your guns and avoid making big decisions based on those emotions. Don’t forget that facts are your friends.

9. Ignoring the Neighborhood

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.¹ 

So be sure to think about resale value when you’re house hunting. The biggest key to picking a home that’s likely to grow in value? Paying attention to the entire neighborhood.

For example, you don’t want to buy the most expensive home in the neighborhood. Instead, choose a home that’s in the bottom price range of its neighborhood—those houses are more likely to be worth more in the future and sell more quickly.

You should also ask what developments are planned for the area. Some, like a new school, add value to your property. Others, like a highway cutting through the yard or a nearby trash dump, lower property values.

10. 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 its 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.

11. Taking on Debt 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 for closing costs is a big mistake. And you definitely don’t want to go out and buy a whole bunch of furniture on credit.

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.

12. Not Budgeting for Closing Costs and Moving Expenses

Everyone knows you need to save up a down payment before buying a house, but lots of people forget about two other big expenses involved in becoming a homeowner: closing costs and moving expenses.

Buyers’ closing costs are typically 3–4% of the home’s value.² For a $300,000 home, that’s another $9,000–12,000 you’ll pay to third parties like the lender, home inspector, appraiser and title attorney.

When it comes to moving expenses, the average cost to move less than 100 miles is around $1,700.³ That number can go way up if you’re moving even farther.

Plan for these costs, and don’t cheat by stealing from your down payment amount or emergency fund. You’ll need that money too!

Frequently Asked Questions