10 Mistakes First-Time Home Buyers Make and Their Solutions

So, you’ve reached a big milestone in life: You’re ready to buy your first home. Buying the perfect home for your family where you will make lasting memories is one of the most exciting moments in life. Even though the home buying process is complex, it can go seamlessly if you’re prepared. Part of preparing is making sure you don’t make costly mistakes. We share the most common mistakes first-time home buyers make and how you can avoid them.

Mistake 1: Not Sticking to Your Budget

When a first-time home buyer gets approved for a loan, they may assume they can afford a home that costs the amount they’re approved for. Even though the lender will ask you financial questions to get an idea of your monthly expenses, the reality of your expenses may be higher, so the amount you get approved for may not be how much you can truly afford.

Solution: Write down all your monthly expenses, from groceries to utilities. It’s better to overestimate on expenses where you don’t have an exact amount. Subtract your total expenses from your monthly income. Next, consider the amount of money you’d like to save or have for extra spending each month. Subtract that amount from your monthly income and the number you have leftover is the amount you can afford for a monthly mortgage payment. Take this final number to your lender to get a more accurate estimate on how much you should borrow and can afford.

Our mortgage calculator can help you get started with this process.

Mistake 2: Shopping for Homes Before Knowing What You Need

Many first-time home buyers make the mistake of touring homes before they really know what type of home they need for their family and lifestyle. This is an easy trap to fall into because we all know touring homes or building a custom home with a bunch of new features is the most fun part of the home buying process. However, you may end up with a home that doesn’t suit your family or lifestyle if you go into it unprepared.

Solution: Start a must-have list with only a few important factors like location, number of rooms, a square footage range and move-in readiness. Add everything else you want to the wish list but keep your priorities in mind first. This will ensure you find a home that fits your needs and will also keep your mind open to a home that may not be perfect on paper but is the perfect place for your family and lifestyle.

Mistake 3: Not Considering Different Loan Types

Buying a home comes with a big to-do list, so oftentimes first-time home buyers don’t consider the different types of loans available and end up with a loan that’s not the best fit for them.

Solution: Depending on your situation, you may want to go with a simplified loan option that doesn’t have as many requirements, or you may need a loan that doesn’t require perfect credit. Either way, you have many options to choose from, so speak with your lender about programs that would be the best fit for you.

To get started on your home buying journey, we can help you find the best Vanderbilt mortgage program here.

Mistake 4: Making a Down Payment That’s Too Small

Paying a standard 20% down payment on a house costs thousands of dollars, which is why many home buyers put down less. It may seem like you’re saving money, but you will pay more in interest, will have less equity and most lenders will charge an additional private mortgage fee every month if you can’t put down that 20%.

Solution: If you can, we recommend delaying buying a home until you reach a 20% down payment. If you can’t delay, the good news is Vanderbilt doesn’t charge an additional private mortgage fee and getting as close as you can to 20% still means less interest and more equity.

Mistake 5: Spending All Your Savings

To be able to put down 20% and pay for closing costs, many home buyers deplete their entire savings. Although, it is ideal to put down 20% it isn’t worth it to spend all your savings.

Solution: If you can, have at least a few months’ worth of living expenses after you pay the down payment and closing costs. If that’s not possible, it may be best to put down a little less than 20%.

Mistake 6: Applying for New Lines of Credit or Loans Before Closing

It may be tempting to open new credit cards to furnish your new home once your offer is accepted, but this could hurt your chances of getting a loan. When you open a new line of credit, it can drop your credit score significantly. Lenders don’t just check your credit score during the pre-approval process, but they will check it again before closing day.

Solution: Don’t open any lines of credit until after closing day and avoid any other big financial decisions like applying for additional loans, opening or closing accounts and making late payments.

Mistake 7: Waiting for the Perfect Home

Buying a new home is one of the biggest decisions you’ll make in life, so you don’t want to purchase a home you won’t be happy to live in for years to come. But many home buyers have a long list of must-haves and deal breakers that are impossible to find. This will narrow the search and prolongs the home buying process, and you can potentially be waiting for a home that doesn’t exist.

Solution: Contrary to popular belief, you can build your dream home on a budget these days. You can speak with one of Vanderbilt’s home partners about your customization options for a new manufactured or modular home to start the process of building your dream home.

Mistake 8: Saving No Money for Maintenance and Seasonal Upkeep

Many first-time home buyers don’t know all the hidden costs of homeownership, including regular maintenance on the home, as well as seasonal upkeep including landscaping. These costs add up and can deplete your savings.

Solution: When you’re figuring out what mortgage you can afford, make sure to take into account money for repairs and maintenance. Another great option is to buy a new manufactured or modular home. A new home means less chance for repairs, and the innovations in the manufactured home industry mean you can buy a new, custom home even on a budget.

Mistake 9: Not Planning for Closing Costs

After a first-time home buyer pays their down payment and figures out their mortgage payment, it may feel like they’re almost done with the big costs that come with buying a home. However, closing costs can cost just as much as the down payment.

Solution: Make sure you know upfront what is included in the closing costs so you can plan for it. Some items included in this cost are appraisals, application fees, taxes and lender fees, just to name a few. As long as you can plan for this, you can either save up or be prepared to borrow from family or a friend.

Mistake 10: Making Decisions Based on Emotion

Buying a home is an emotional experience. Afterall, you’re looking for a place to raise your family and make memories. Many first-time home buyers aren’t prepared for the pitfalls of home buying including being outbid or realizing you need to save even more money. These factors can lead to you making decisions based on emotion.

Solution: Have a clear goal in mind going into this journey and stick to it as much as possible. Making decisions based on logic and costs will ensure the process goes more smoothly.

Explore the Vanderbilt Home Loan Guide for First-Time Home Buyers