The number of things you have to worry about when you’re buying real estate can be as long as a CVS receipt, particularly when you’re diving into the process for the first time. So before you start lining up those home tours, let’s walk through some of the biggest—and most common—mistakes and missteps first-time homebuyers make so you can save money and avoid regrets.
(In case you’re wondering, six of the buildings pictured are masterpieces of modernist architecture. The seventh is the house from the movie Halloween.)
Looking before you’re pre-approved for a home loan
Unless you like being disappointed, don’t start touring houses without being pre-approved for a loan. Don’t even search for houses online, unless you’re strictly daydreaming. Once you’re serious about buying a house (or even semi-serious), the first thing you should do is get pre-approved for a home loan. You might be pleasantly surprised at how much money people will lend you, or crushingly disappointed that you can only afford a hovel. Either way, it’s better to know the truth and not waste your time.
Only applying to a single lender
Most of us compare prices when we’re buying a car or a washing machine, but almost half of home buyers don’t shop around to to different lenders for their mortgage, even when borrowing hundreds of thousands of dollars. Interest rates, fees, closing costs, and more can vary from lender to lender, and that could add up to hundreds of dollars in savings in just the first year of home ownership, so make an informed decision by applying with at least three mortgage lenders.
Not estimating enough time for the process
Once the pre-approval for a loan is in place—and that usually takes between 60 and 90 days— it’s time to start looking at houses. This process can be grueling, so be prepared to put in some work. On average, home buyers spend 124 hours looking for the perfect crib, and check out an average of 19 houses before they find the right one. You’ll be spending a lot of time with your real estate agent. Speaking of which…
Not working with an experienced professional
As in any profession, real estate agents vary greatly in knowledge and professionalism. Licensing requirements differ from state to state, but in general, it’s not incredibly difficult to become a real estate agent. It’s slightly more difficult to become a realtor (a real estate agent who is a member of the National Association of Realtors and pledges to abide by its code of professional ethics), and it’s slightly more difficult than that to become a real estate broker (a real estate agent who has completed additional training and licensing requirements and can hire agents to work under them). But ultimately, the title might not mean as much as finding the right person for you, so plan to do some research—get recommendations from friends, do online research, and don’t be afraid to set up interviews to ask questions.
Falling for real estate scams
First-time home buyers are ideal victims for scammers: They’re going through a complicated financial and emotional journey where everything is likely unfamiliar. The specifics vary, but the general red warning flags of real estate scams include high pressure sales tactics, unrealistic “guarantees,” and anyone wanting you to wire money anywhere, especially if they tell you to do it right away.
Buying a house with a friend
There are advantages to buying a house with a friend—you’ll likely be able to qualify for a larger loan, you’ll be able to split the expenses and labor—but the potential downsides far outweigh the benefits. Since both of your names are on the mortgage, you’re on the hook if your friend stops paying. Credit rating firms don’t care about your individual agreement and regard the mortgage loan as 100% yours, so your debt-to-income ratio becomes ridiculous. Arguments over home maintenance are way more serious than arguments over who has to do the dishes. Overall, it’s a good way to ruin your financial life and your friendship.
Not buying a house if you can
Buying real estate is an incredible hassle, so it’s understandable that a lot of people keep renting. But it’s much better to be paying off your own mortgage every month than someone else’s. On average, houses appreciate by around 14% a year. Not only is that a better return than most investments, you can live in it. There are a ton of of programs to help first-time home buyers, from first-time buyer grants from the federal government to state and city programs. Look into them; you might be surprised at what’s possible.
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