10 Home-Buying Mistakes to Avoid

Buying a home is an exciting life milestone and a huge accomplishment. But a few common home-buying mistakes could make becoming a homeowner more stressful and expensive. If you’re not ready for all of the costs of buying and owning a home, you could spend the first few years in your new home trying to keep your head above water.

To help you prepare for these costs, Freedom Debt Relief polled more 1,000 homeowners about the most expensive home-buying mistakes they made. Knowing about these common pitfalls could save you money and set you up for success as a homeowner.

Here are the top flubs home buyers wish they hadn’t made.

1. Not Getting Pre-Approved for a Mortgage

Before you start attending open houses or hiring a real estate agent, pre-approval for a mortgage is a critical first step. 

Different mortgage lenders sometimes offer pre-qualification vs. pre-approval for mortgages. Pre-qualification is usually a more basic level of finding out how much mortgage you can get based on your income, credit, and a soft credit inquiry instead of a hard credit check. Getting pre-qualified for a mortgage could give you a good first estimate. 

Getting pre-approved for a mortgage is more involved. You’ll need to show the lender your bank account statements, information about your other debts, and credit history. Also required: a hard credit inquiry, which could reduce your credit score by a few points. 

Once you’re pre-approved, most lenders offer this status for 60 to 90 days, giving you time to find and buy a home. Some lenders offer 30- to 120-day pre-approvals. 

Getting pre-approved for a mortgage offers big benefits for home-buyers. It gives you a clear picture of how much home you can afford and how much your monthly mortgage payment might be. Then you can focus on the homes and neighborhoods that fit your budget. And it prepares you to make an offer on your dream home, because having mortgage pre-approval shows homesellers you’re a serious buyer who’s ready to close.

If you’re having trouble getting pre-approved for a mortgage, or if you can only get approved for mortgages with higher interest rates and extra fees, you might want to try reducing your debt-to-income ratio (DTI) by paying down unsecured debt. 

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2. Not Saving Enough for a Down Payment

More than two-thirds of homeowners in our Freedom Debt Relief survey said they didn’t save enough for a down payment before purchasing their home. A down payment is the cash you put toward your new home before taking out a loan. The more money you put down, the lower your monthly mortgage payment will be.

An old rule of thumb was to make a down payment of 20% of your home’s value. For example, if you buy a home for $400,000, a 20% down payment would be $80,000. Then you would borrow the remaining $320,000. 

Making a down payment of at least 20% will allow you to avoid private mortgage insurance (PMI), lower the cost of your monthly mortgage payments, and potentially lower your mortgage interest rate.

The reality is, most homeowners put much less than 20% down. It’s understandable that many people would choose to buy a house with a lower down payment, because saving up tens of thousands of dollars of cash is difficult. 

If you make a low down payment, you’ll probably have to pay for PMI. You can get rid of PMI once you have 20% equity in the home. You build equity by paying down your mortgage and as your home’s value increases.

Making a small down payment can also put you at risk of being underwater on your mortgage if home prices decline. If your down payment is too small a percentage of your home’s purchase price and your local housing market goes into a downturn, it’s possible to end up with a home that is worth less than you owe on the mortgage. 

Even if you can’t save up enough cash for a 20% down payment, it’s important to reduce your other debts and have as much cash as possible socked away before you start house hunting. That way, you’ll be more likely to qualify for an affordable mortgage payment when you start making offers.

If you need money for a down payment, first-time home buyer assistance programs could help if you qualify. Look for down payment assistance programs near you. Some state government agencies, cities, or nonprofit organizations offer down payment assistance in the form of grants, forgivable loans, or down payment matching programs. 

The exact details of a down payment assistance program will depend on your location. Some programs are for lower income borrowers, and many have a minimum credit score. To qualify, you also will typically have to buy a home at a price below a certain level or one located in a certain area.

Sometimes, a mortgage with a lower down payment is the best option to help you get into a home. Low down payment mortgages could still be affordable. Conventional mortgages allow down payments as low as 3%. 

If you don’t qualify for a conventional mortgage or just want other options, different loans may require smaller down payments. For example, FHA mortgage loans have down payments as low as 3.5%. Some USDA mortgage loans and VA loans require no down payment at all. You’ll need to qualify for a low down payment loan from one of these special government mortgage programs. 

A mortgage with a small down payment isn’t a home-buying mistake. It could help you hold onto more cash and give you better flexibility for how to manage your money. Pay as much as you can toward your home purchase so that you can avoid wishing you had paid more.

It’s good to know the risks and downsides of a low down payment mortgage. Make sure you have enough room in your budget not just to buy the home, but also to be able to keep making your mortgage payments for the long term. 

3. Not Learning All Your Loan Options

There are two main types of mortgage loans: conventional and government-backed. You can get conventional mortgage loans from banks and credit unions if you have good enough credit, income, and debt-to-income ratio (DTI). Government-backed mortgage loans provide mortgages for people with special situations or who might need assistance with qualifying for a home loan. 

Even if your credit is less than fair or you’re struggling to save for a down payment, you might qualify for different types of mortgage loans. Not every home buyer can get every type of loan. Some special government mortgage programs have limited requirements like location of the home, your income and credit score, or whether you’re part of the U.S. military. 

No matter your situation, it pays to learn about all your loan options. That way, you can make the best choice for your financial goals and home-buying budget. 

Here’s a quick breakdown of the different types of government-backed mortgage loans, and which situations might be the best for each. 

FHA loans

The Federal Housing Administration (FHA) insures these mortgage loans, which private lenders such as banks and credit unions offer. This special program offers mortgages with down payments as low as 3.5% and allows lower credit scores than conventional mortgages. 

Who it’s best for: FHA Loans might be the best choice for people with fair or lower credit scores who have difficulty qualifying for conventional mortgage loans.

VA loans

The U.S. Department of Veterans Affairs guarantees these mortgages for qualifying members of the military, and participating financial institutions issue them. Government backing means VA loans are rated as less risky for lenders, so borrowers can get a better deal. Almost all VA-backed loans require no down payment.

To qualify for VA loans, servicemembers must have served on active duty at least 90 continuous days. Veterans must have served on active duty at least 24 continuous months or met other minimum qualifying time for active duty service based on the time you served.

Who it’s best for: If you’re an active-duty servicemember or can qualify based on previous military service, VA loans are probably your best choice for an affordable mortgage. 

USDA loans 

The U.S. Department of Agriculture (USDA) offers special mortgage loans, also called rural development loans,” for people with low to moderate incomes and lower savings who want to buy eligible homes (usually in rural areas) These loans don’t require a down payment and tend to have lower costs than FHA loans. 

Who it’s best for: USDA loans are the best choice for lower income home buyers who want to live in rural areas and who have a hard time qualifying for conventional mortgages. Make sure the home you want to buy is in a qualifying area. Use the USDA loan eligibility map to look up the address of the home to find out if it qualifies.

If you’re put off by the high interest rates and fees that come with mortgage quotes from conventional lenders, a conventional mortgage might not be right for you. You still have options and might find that an FHA, VA, or USDA loan is a better choice for you, with possibly lower mortgage costs and better flexibility for buying a home. 

4. Not Saving Enough for Closing Costs

Along with your monthly mortgage payment and down payment, you’ve got other costs when you buy a home. A common home-buying mistake is forgetting about closing costs—the miscellaneous costs of finalizing a home purchase. These include attorney fees, title insurance, appraisal fees, property taxes, and lender fees. Closing costs could be 2% to 5% of the home’s purchase price, amounting to several thousand dollars. 

According to the Freedom Debt Relief survey, 59% of American homeowners said they didn’t have enough money saved for after closing. This means that even if they had enough cash for a down payment, they failed to take closing costs and other fees involved in buying a home into account. Closing costs don’t always have to be paid in cash; they can be rolled into the overall cost of your mortgage. But this will add to your mortgage amount and increase your mortgage payments. 

Closing costs made this list of biggest home-buying mistakes, because they can come as a surprise if you don’t do your research before taking out your mortgage. Since you may have to pay these fees when you take out your mortgage, make sure to prepare yourself for this additional expense by saving a little extra before searching for your new home.

5. Not Shopping Around for a Mortgage

More than half of Americans surveyed wish they would have shopped around more for a mortgage. In addition, 42% believe that their interest rate is too high. Buying a home is one of the largest purchases you will make in your lifetime, so it pays to do more upfront research. But too many American home buyers take the first mortgage offer they can find. 

According to Freddie Mac, fewer than half of prospective homeowners shop around for a mortgage. This results in leaving money on the table—sometimes to the tune of thousands of dollars. Shopping around for a mortgage could help you get a better loan.  

It’s true that your credit score could take a minor hit from rate shopping. But if you limit your applications to a short period of time (14 to 45 days, depending on which kind of credit score is being calculated), multiple mortgage loan applications will count as a single hard inquiry on your credit score. Missing out on savings by shopping around for mortgage rates is one of the biggest home-buying mistakes you can make.

6. Waiving Home Inspections 

A home inspection is a critical cost so you can learn as much as possible about the condition of the home you’d like to buy. This usually costs about $300 to $500 for a professional licensed home inspector to take a look at the home. Home inspections check for safety and functionality, and evaluate the structure and foundation, electrical system, plumbing, HVAC. 

If something is seriously wrong, or a home requires repairs that are too costly for your budget, a home inspection could help you avoid a money trap. For example, a home inspector might discover that the home

• Needs a new roof

• Requires extensive plumbing repairs 

• Has dangerously outdated wiring that could be a fire hazard 

If the home inspection finds too many big problems, you might want to walk away from that home. 

Home inspections don’t have to be a dealbreaker. You could negotiate with a home seller to ask for repairs, credits, or price reductions based on the home inspection. In high-priced, competitive housing markets, this might not be possible. When there are many more buyers than sellers, many home buyers are tempted to waive the home inspection. 

Waiving a home inspection can be risky and may not improve your chances of getting your offer accepted. Waiving home inspections could leave you with big unexpected bills for home repairs. Hiring a home inspector can help protect your personal finances for years to come.

7. Making Emotional Decisions

Buying a home is about more than just money. For most people, it’s one of the most emotional decisions they ever make. Buying a home touches on feelings of comfort, safety, ambition, security, family, pride, status, success, independence, identity, and much more. Almost no other purchase brings up so many complex feelings about image and identity, as well as how people spend their time and money.

Many home buyers base their home-buying decisions on feelings instead of financial facts. 

Here are three examples of buying a home using emotion rather than logic:

• Dream house. You strain your budget to buy more house than you can afford, without realizing the pain of a huge monthly mortgage payment. 

• Desirable neighborhood. You buy an overpriced house that’s too small and in bad repair in a neighborhood you couldn’t afford otherwise. 

• Family concerns. You want a big home in a good school district for your growing family, but you end up with a rough commute because you live too far from work.

Stick to your pre-approved mortgage budget, and don’t let a perfectly staged house or slick professional photographs on a real estate website dazzle you. Stay calm and level-headed during home tours—don’t feel pressured to make an offer right away. 

A good real estate agent should help you stay grounded and avoid emotional decisions. The best real estate agents will talk through your options, listen to your concerns, and help you understand the selling points (and potential weaknesses) of every home on your list. 

The goal is to get the right home for your money and your life without getting emotionally attached to an impossible “dream” home that ends up being more stress than it’s worth. 

8. Ignoring Neighborhood Research

When it comes to home value, remember the old real estate industry saying about the most important factor: Location, location, location. Before you buy a home, the city and neighborhood could be even more important than the actual home. 

Start by looking up local crime statistics and neighborhood safety trends. Many state and city governments offer online crime maps and law enforcement response trackers based on public data. This could help you understand if your dream home is in a neighborhood with lots of burglaries and car break-ins—or if the home’s location is safer than it used to be. 

Put some research into the neighborhood’s future development plans and area growth projections. Find out if the area is:

• Planning a highway expansion or other nearby big infrastructure 

• Experiencing strong population growth 

• Developing new public amenities, like schools, parks, or shopping centers 

These could be positive signs of a prosperous, growing location with strong public services and plenty of things to do—and that your home value might increase in years ahead.

Spend some time driving, walking, or biking around the neighborhood. Try to imagine what it would feel like to live there. Do a test run of your morning commute from the home’s location, and think about how that commute compares during different seasons or peak rush hour times. Check out local shops for weekend brunches or drycleaning and shoe repair shops.

Researching and exploring the neighborhood, not just the home itself, could improve your chances of finding the perfect neighborhood. Hopefully, you’ll find the right combination of home and location that fits your budget and gives you a higher quality of life for years to come. 

9. Taking on a Too-High Monthly Mortgage Payment

Another common home-buying mistake is locking in an uncomfortably expensive or unaffordable mortgage payment. Slightly more than half of homeowners told Freedom Debt Relief that their mortgage payments are too high. High mortgage payments may tie back to not making a big enough down payment. Your property taxes are also likely to go up over time. 

Americans might be feeling the squeeze for other reasons, too. Many Americans can’t handle an unexpected $500 expense. When people don’t have enough cash for emergencies, it’s no wonder homeowners are stressed about making their monthly mortgage payments.

If you’re thinking about buying a home, it’s crucial to plan ahead. Check your monthly budget to understand how much you’ll be paying each month on your mortgage, and make sure you can afford it. To help you free up some extra room in your budget and make sure you’ll be able to pay your mortgage, start by getting rid of credit card debt.

10. Not Preparing for the Ongoing Costs of Homeownership

The final big home-buying mistake is failing to plan for the unexpected costs of homeownership. Owning a home is more than just a monthly mortgage payment. You need to prepare for ongoing costs like utilities, insurance, property taxes, and (homeowners association fees, where applicable. Along with these recurring bills, you also have to be ready for random repairs and ongoing maintenance. 

Not understanding the costs of owning a home is one of those home-buying mistakes that sneaks up on you after the fact. Nearly 59% of homeowners in our survey said that home maintenance and repairs were more expensive than expected. And if you want to do a home renovation, prepare for the cost to be more than you planned. 

Here are two formulas for how much to budget for home repairs and maintenance: 

• $1 per square foot per year. A 1,500-square-foot home would need $1,500 per year for repairs and maintenance.

• 1% to 2% of home value per year. A $400,000 home might need $4,000 to $8,000 per year. 

Set Yourself Up for Success

When preparing for homeownership, the bottom line is: if you can save more money in advance, you’ll be better off. Most of the biggest home-buying mistakes come down to not having saved enough cash. 

Ask yourself the following questions before taking out a mortgage.

Is my credit score good enough for a mortgage? 

One of the most important factors in getting a good mortgage rate is your credit. If your credit score isn’t as high as you’d like, you might need to work on improving it for a few months before you apply for a mortgage. 

A few tips to raise your credit score include: 

• Pay your bills on time. Set up automatic payments and reminders so you never miss a due date, even if you can only make minimum payments on a credit card.

• Reduce your credit utilization. If you’re borrowing a large percentage of your credit card credit limits each month, your credit score might take a hit. Try to pay down credit card balances before your statement date.

• Recover from negative credit history. If you have serious negative items on your credit history like charged-off debt, foreclosure, or bankruptcy, this could make it harder for you to get a mortgage. You might need to wait a few years until the negative items come off of your credit report. 

People with lower credit scores could still qualify for other government-backed mortgages, like FHA loans. You’re likely to get better, lower-cost mortgage options if you have a higher credit score. 

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.

Do I need to get rid of other debts before getting a mortgage? 

Getting rid of other debt before applying for mortgages could improve your debt-to-income ratio (DTI), another piece of information that mortgage lenders look at when deciding to offer you a mortgage loan. Your DTI is a way to measure how much debt you have vs. how much you can afford to pay based on your income. 

To get your debt-to-income ratio (DTI), add up your monthly debt payments (including student loans, car payments, and minimum credit card payments) and divide that total by your monthly gross income (that’s your total pay before taxes and deductions).

For example, if your monthly gross income is $5,000 and you pay $500 a month for a car loan, $300 for student loans, and $100 of minimum credit card payments, your DTI ratio is: 

500 + 300 + 100 = 900

900 / 5,000 = 18%

Most lenders consider an ideal DTI to be 36% or lower. Even if you have a DTI up to 50%, you might still qualify for a mortgage. 

If you want to lower your DTI, you’ll have to get rid of some existing debt. Try to pay off your car loan faster, or trade in your car for a lower-cost, paid-off model. Pay down credit card debt faster to reduce your monthly minimums. If you’re struggling with unpaid or overdue debts, you might want to consider professional debt relief. Reducing your debt or using debt relief programs could free up more cash in your monthly income to put toward eventually qualifying for a mortgage and buying a home. 

How much of a down payment can I make?

Understanding the upper limit of how much you can put down on a mortgage will have a direct effect on your interest rate, PMI, and monthly mortgage payments. You may not need to pay the full 20%, but the more you can pay the better.

How many mortgage quotes have I looked at?

A 2023 study from Freddie Mac found that getting one extra mortgage quote could save you $600 per year, and five quotes could save you up to $1,200 per year. Don’t be afraid to compare rates and find the best offer for you.

Here’s a quick breakdown of how much you might save by shopping for mortgage rates, based on Freddie Mac’s survey averages: 

What is my monthly mortgage budget?

Generally, mortgage lenders will only let you get a mortgage with monthly payments equal to 28% of your household’s gross income. But if you’re dealing with student loans, car payments, or credit card debt, you may want to consider how those costs—and your monthly budget as a whole—impact your ability to pay.

Can I pay closing costs and still have enough to cover an emergency repair?

If paying for closing costs is going to deplete your savings, you may want to consider holding off. While you may be tempted to put all of your life savings into your down payment, the reality is that emergency repairs happen. If you don’t have an emergency fund that can cover those repairs, you may end up having to rely on credit cards to fix your home. Racking up credit card debt is among the biggest home-buying mistakes, especially if making debt payments makes it difficult to make your mortgage payments.

Learning how to manage money, make wise purchasing decisions, reduce debt, and plan for your future doesn’t need to be too difficult. By making sure you have enough saved to cover a down payment, closing costs, and emergency repairs, you’ll be on the road to success as a new homeowner.