Learn how to navigate hurdles related to financing, finding and negotiating a home purchase for the first time.
Buying a home, like anything you do for the first time, comes with a learning curve. And yet many first-time home buyers hesitate to ask questions that can help them avoid first-time homebuyer mistakes that often lead to buyer’s remorse.
Having useful information about what’s involved in home buying — both around the home itself and financing — can make the process less stressful.
We asked Michael Douthwaite, a mortgage loan officer with Zillow Home Loans℠ who has helped hundreds of buyers finance a home purchase, and three Zillow Premier Agent® partners* with deep knowledge and experience in helping homebuyers, to share some common first-time homebuyer mistakes and tips for avoiding them.
“A lot of clients come in with all these assumptions, thinking there’s going to be a ton of steps involved,’’ says Douthwaite. “But it’s not that complicated, especially if you have that educational moment on just what steps to expect.”
We’ll start with common mistakes when financing your first home purchase, and then get to the home itself — finding it, evaluating it and negotiating for it.
1. Hesitating to ask for information or clarity
If this describes you, you’re not alone — not by a long stretch. Douthwaite estimates about 90% of his clients don’t know what to expect during the loan process, but many don’t ask questions.
“We have some people, just naturally, that are open to asking questions, but most people don’t want to feel dumb,”’ says Douthwaite. “They don’t want to feel like they don’t know what they’re doing so they don’t ask questions.” Not asking questions or having wrong assumptions go unchallenged can create problems as the transaction moves along.
PRO TIP: Ask questions! Lots of them. Expect your loan officer to provide an overview of the process and build trust so you can either move ahead with a purchase or take steps to become ready.
2. Planning to take out a bank loan for the down payment
When you buy a home with a mortgage, you typically have to pay at least 3% of the purchase price upfront. That’s called a down payment. The source for down payments varies: some buyers tap savings, sell stock, receive gifts from family and friends, etc. But one thing you can’t do is take out a bank loan for the down payment, says Douthwaite.
“Unless it’s coming from a secured loan like a home equity loan, you can’t take out a loan for the down payment,” he says. “You can’t finance the down payment. You can’t use a credit card or anything like that.” One exception is borrowing from your 401(k), if you have one. There are lots of rules to follow and consequences for tapping those funds, however, so be sure to talk to a tax advisor.
PRO TIP: If you’re wondering how much you should be saving for a house, read more about how down payments work, and learn creative ways to save for a down payment.
3. Failing to build and protect your credit score
Your credit score is an important measure of creditworthiness that lenders consider when deciding whether to give you a mortgage and the interest rate they’ll charge you. Your credit score is influenced by any number of things, and can take a hit if you run up large credit card bills or finance a large purchase, such as a car, even months before applying for a mortgage.
PRO TIP: Read about why your credit score matters and ways to protect it.
4. Not investigating down payment assistance programs before seeking financing
A lot of buyers are unaware of the different types of low-interest and/or forgivable loans and grant programs to help first time buyers.
Saving for a down payment is often the biggest challenge for first-time buyers. You can qualify for a home loan with no money down or with a low down payment of 3% — or zero if you’re a veteran. You also may qualify for down payment assistance through a local program that offers them.
Government programs can help buyers, even if one of the buyers has previously owned a home. Shelly Salas, a broker with Your Home Sold Guaranteed Realty in Texas says buyers whose spouse or partner has never owned a home can qualify for loans available only to first-time buyers as long as their name was not registered on the deed. The programs include down payment assistance, low interest loans, grants, forgivable loans, deferred payment loans and other incentives that help lower the amount you have to borrow.
PRO TIP: Home listings on Zillow® include information on down payment help you may be able to access to buy that particular home. Research assistance programs in your area to see what you might qualify for. You can also see if you qualify for down payment assistance.
5. Shopping for homes before getting pre-approved for a mortgage
Shopping is the fun part, so of course you’d want to get out there and start looking at homes. But Douthwaite says your search is going to be more focused — and more likely to succeed — if you’re shopping within your budget, which can be hard to know unless you’ve gotten either pre-qualified or pre-approved. In competitive markets, pre-approval is especially important as it could help you shape an offer with confidence without overextending yourself.
PRO TIP: “We recommend having a conversation with financing, either at or before the first viewing, or right after the first viewing,’’ says Douthwaite. “I had a client who was shopping in the $400,000 price mark with an agent for two weeks. It turns out, she can only qualify for a $200,000 home, so she just wasted two weeks.” You can get pre-qualified or pre-approved with us at Zillow Home Loans without any commitment to use the same lender.
6. Not being aware of having to pay closing costs when the sale closes
Buying a home comes with costs that have to be paid at the time the sale is completed. These costs — called closing costs — include local property taxes for the remainder of the year in which you’re buying, fees associated with the loan and title insurance. The costs usually range from 2% to 5% of the home’s purchase price, and can be negotiated so they’re shared with the seller.
PRO TIP: Once you find a home and apply for a mortgage, the lender must disclose all fees and costs associated with the loan. The lender must give you a loan estimate of how much you’ll need to bring to the closing to buy that home.
7. Failing to negotiate closing costs
Closing costs are always open to negotiation. Sellers often pay a share of the costs or offer to buy down the mortgage interest rate to help lower your monthly payment, especially in housing markets that favor buyers. Your agent and your loan officer can help you identify areas for negotiation.
“If there is something that comes up, we can help negotiate the offer where the seller gives you credits so you can bring less money to the closing or helps you lower your monthly payment,” says Douthwaite.
PRO TIP: Don’t be afraid to negotiate. Your agent should be an expert on your market, and should know how to craft a strategic offer that minimizes your costs. Here are some tips on how to reduce closing costs.
8. Not considering the monthly payment before making an offer
Experts say your mortgage payment should not consume more than a third of your income to ensure you have money for emergencies and enjoying life. A home that falls at or below that threshold is considered affordable. Some first-timers, however, don’t do the math on what they can afford, says Douthwaite. For instance, Zillow has a variety of calculators that can help answer the following questions:
- Should I rent or buy a home? Our Rent vs Buy Calculator shows you the number of years it would take before the cost of buying equals the cost of renting.
- What will my mortgage cost monthly? Get a quick estimate of your total monthly payment, including principal and interest, and estimates for private mortgage insurance, property taxes, home insurance and any homeowner association fees.
- How much can I comfortably afford to spend on a home? Estimate your affordability based on details you enter about your income, down payment and monthly debts.
- How can I personalize my home-buying budget? Create a personalized, real-time estimate of the home price and monthly payment you can afford at any moment in time given your credit score, income and mortgage interest rates with BuyAbilitySM.
PRO TIP: Get a handle on what you can afford by talking to a lender, or using tools that will do the math for you.
9. Lacking knowledge about interest rates and how they affect affordability and buying power
Even seemingly small changes in interest rates can affect whether a home is affordable or not. For instance, if you budgeted about $1,846 a month for a mortgage payment, and the interest rate dropped 1 percentage point — from 7% to 6% — you could spend about $30,480 more on a home without increasing your monthly payment, according to a Zillow analysis.
PRO TIP: See how a seemingly small change in mortgage interest can impact your home buying budget and financing options.
10. Taking rejection personally
Not getting a home you put an offer on can be hard on some buyers, and some take it personally, says Douthwaite. “They’ve already imagined buying the furniture. They imagine their family in that home, and when they hear that rejection on a house where they’ve imagined their future, it really hits some people hard.”
Douthwaite says buyers should remind themselves that home buying is a numbers game on some level. You might get lucky and buy the first home you set your sights on. But it’s more likely that you’re going to look at multiple homes and, if you’re in a competitive market or the home is desirable to many others, you may not get the first one you made an offer on.
PRO TIP: Working with an agent and being financially ready to act quickly and decisively when you see a home you want can help you buy the home of your dreams.
11. Not realizing pre-approvals are good for an extended period
Buyers often become dispirited if they miss out on a home they want, and may pause their shopping because they don’t want to repeat the process. But Douthwaite says that buyers often don’t know that many lender pre-approvals are good for 90 days, giving extra time to find a home.
“You don’t have to reapply again during that period,’’ he says. “This is going to be good for 90 days throughout the entire state. If one home doesn’t work out, you still have our blessings to hit the ground running for the next one.”
PRO TIP: If you miss out on a home you had heart-eyes for, take a beat. Take time to reset, and if you’re still game, you can work with your agent to keep looking.
12. Buying more house than you can comfortably afford
Salas of Your Home Sold Guaranteed Realty in Texas,says buyers may not realize the hardships that can come from buying a home too far outside their comfort zone.
“Just because you qualify for a $500,000 loan, are you going to be house poor? Are you going to be able to go to the movies? Do you want to be able to afford the house and not eat ramen noodles every day?” Salas says. “We want them to be in a comfortable scenario, where you can have the house of your dreams that’s within your comfortable budget, and still be able to do day-to-day activities.”
PRO TIP: Salas recommends that buyers get pre-qualified from a lender so they know their purchasing power from the get-go. Then they can search for homes that fall into that budget, setting themselves up for success rather than disappointment or hardship.
13. Being unaware that some low-interest mortgages can be assumed from the homeowner when you buy the house
Buyers may be unaware of loan options beyond taking out a new mortgage, even though some homes have low-interest mortgages that can be assumed by the buyer, Salas says. Most conventional loans are not assumable, but qualified buyers can assume loans insured by the Federal Housing Administration (FHA), and those backed by the VA and the U.S. Department of Agriculture if they meet certain conditions. Each loan type has its own rules, so be sure to check with the lender. Salas, who works in a military town, says she’s seeing an increasing number of buyers who are able to assume Veterans Administration (VA) loans from sellers who financed at rates between 2% to 3%. Doing so can save buyers hundreds of dollars a month compared to current rates, which have hovered above 6% in recent months.
PRO TIP: Did you know you don’t need to be a veteran to assume a VA loan?
“If they qualify, they can assume the loan,” even if they’re not in the military, she says. “They’re able to take on that 3% or whatever the interest rate is for the remainder of the balance on the current homeowner’s loan.”
14. Failing to negotiate concessions from sellers
Every home purchase involves negotiating, even over things that might seem out of bounds. For instance, Salas says she’s negotiated concessions where sellers pay off solar panels, so the buyer owns them — and the house — free and clear. In one case, she says, the concession for the panels amounted to $60,000 in saved costs to the buyer.
PRO TIP: Don’t assume sellers won’t negotiate, especially in a buyers’ market. Look to your agent to help you get the best deal. “As a buyer, you may go in, and because it’s an emotional purchase, you might say ‘okay’ if the seller tells you no,’’ Salas says. “We come in and negotiate for the buyer. We’re able to pull market data and see if the neighbors paid concessions. If so, we can share that data with the seller, and say, ‘I know you’re saying you don’t want to pay for this, but let me show you what your neighbors did. It’s powerful.”
15. Not researching agents
Finding an agent who can guide the process and strategize ways to craft a winning offer is hugely important, and yet many buyers don’t vet their agents for experience or success, says Salas.
“A lot of agents sell one or two deals a year, and you, as a consumer who’s thinking about entering this market, really should do your research and look at the agent’s reviews and what other clients are saying about them,’’ says Salas, who offers buyers a guarantee: if they’re not happy with the home they bought, she will either buy it back from them or sell it for free.
PRO TIP: There’s a strong case for connecting with an agent who has deep knowledge of the market where you’re shopping, as well as multiple strategies to help save you money on the sales price, closing costs, even home repairs and moving.
Salas, who hosts the Shelly Salas Real Estate Show on KTEM radio, says buyers should vet their agents for experience and success. Every market has its own dynamics, and the strategies you’d use to buy in a seller’s market will differ from those you’d employ in a buyers’ market, she says.
16. Considering only turnkey homes
Turnkey homes come at a premium and are likely to be the most in demand. Focusing only on those homes means you could lose out at a time when for-sale inventory is low and demand for homes that require no work is strong, says Winston Murray, founder and principal broker for Works Real Estate Company in Portland, Oregon. “Purchasing a fixer might help you get the location or square footage and layout you want without having to pay top dollar,’’ says Murray. “While there is value in having something turnkey ready, buyers pay for that convenience.”
PRO TIP: Murray says lenders finance homes based on the home’s current condition, not how much it’ll be worth once you’ve improved it, so you’ll want to be sure the home is priced right to qualify for a mortgage and afford the improvements. He also recommends that you have the required skills and time to make the improvements. “If you’ve never restored properties before and it’s your first time, I recommend purchasing a cosmetic or light fixer,’’ he says. “Ideally this is something you are happy living in while doing small updates over time like light fixtures and paint, etc.”
17. Not looking at different home types, including new construction
Some buyers avoid looking at all home types, which can be really limiting, especially if you’re in an area with a lot of new construction. Newly built homes often come with financial incentives for buyers, which can help lower your monthly payment and closing costs, and you may be able to work with the builder to alter some of the space or customize finishes to suit your tastes, says Murray.
PRO TIP: Murray recommends you check the builder’s reputation, the projects they’ve done, and customer reviews. If they’re a small builder, he suggests you look for evidence that they’re responsive and communicative before, during and after the sale, and check on any warranties they provide and whether all the permits are closed prior to their sales being finalized.
18. Being unwilling to compromise on home features, neighborhoods
It’s great to know what you want in a home, but having a long list of “must haves” that you’re unwilling to let go of can leave you empty handed. “Regardless of the price point it’s tough to find everything on your dream list,’’ says Murray. “ I’ve helped hundreds of home buyers, and there’s always a little give and take. It’s helpful to get clear on your search criteria and what you want to prioritize.”
For some people the location is the most important thing and for others just having the right layout or view is what matters most, says Murray. “If you aren’t finding the right house in the right location and the right price, I recommend you adjust your expectations about what you can get for the location or expand your search out geographically. Don’t wait too long for the right one as prices continue to rise. The up and coming area just outside of your search won’t have low prices forever.”
PRO TIP: Knowing what features are must-have and which are nice-to-have can help you make those decisions.
19. Writing off homes that have lingered on the market
Sometimes homes get passed over for benign reasons — an offer fell through because the buyer couldn’t get financing, for example, or the appraisal was lower than the asking price, and the home ends up sitting on the market for a while. Some buyers might think there’s something wrong with the home, and won’t consider it even though it could be a good fit at the right price, says Murray.
PRO TIP: “There’s opportunity in the homes that came on the market too high in price, have bad photos or are poorly staged or not staged at all,’’ Murray says. “Make sure you are looking out for the new inventory but also keeping an eye on older inventory. There is opportunity in both.”
20. Ignoring potential hidden costs
If you’re moving to a new state or locale, you may be unaware that different states, counties and cities have their own rules and ordinances that could impact your home buying budget, says Marcus Larrea, founder and team lead at Palm Paradise Realty, in southwest Florida.
“Something may seem affordable, but in reality, it’s not because of all the hidden fees and costs on the back end,’’ he says. These fees can include insurance costs in flood zones, condo reserves and special assessments. “Certain properties may not be able to qualify for financing because of insurance issues or budgeting issues,’’ says Larrea.
PRO TIP: An experienced agent who is well-versed in those issues can help you factor in those costs of buying and head off problems before they surface, he says.
21. Waiving home inspections
Some buyers are so eager to close a deal on a home that they’re willing to waive an inspection that could reveal serious problems with the home, including foundation damage, mold, faulty heating systems, and more. Some find out after buying the home, however, that they’ve bought a money pit.
PRO TIP: Do not waive an inspection, except in extreme circumstances. If you’re considering a home that needs repairs or updating, consider bringing a contractor to the inspection to give you an idea of what things might cost, Larrea says.
Your agent should have a stable of home improvement professionals who can give you an idea of what might be involved in improving the home and provide cost estimates, he says. “That way, you can start to have an idea at least of what the cost could be and budget accordingly,’’ Larrea says. “And if it’s not something you can do right away, maybe you can do it in six months.”
22. Choosing a home based on things that can be easily changed
It’s hard to find the perfect home, and even harder if your list of wants is long and specific. Jason Farris, founder and author at FresYes Realty Group in Fresno, California, says he had a buyer who wanted to pass on a home she liked because it didn’t have a dual sink in the kitchen. He says he explained to her that a home that has everything she wants is likely to come at a premium, and that she could always install a dual sink at the house when she owned it.
PRO TIP: “Instead of waiting, and continuing to be outpriced by the market, look for the home that has all the things you want that are really expensive to change or can’t be changed, like lot size,’’ says Farris.
*The Agent Advisory Board (AAB) was established as a forum for Zillow’s Premier Agent partners to share insight and industry expertise, helping to inform Zillow’s strategy behind key business decisions.