10 Rookie Home Buyer Mistakes to Avoid

Get the most from your purchase by sidestepping these costly pitfalls.

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It was supposed to be a momentous occasion for Brian, who was about to close on his first home. But after signing a thick stack of documents—and taking part in the ceremonious passing of the keys—something felt off for the then 26-year-old Montgomery County, Md., resident. There wasn't even a chilled bottle of bubbly or a housewarming gift to punctuate this pivotal moment. "My Realtor told me that I can take him out for a steak," recalls Brian, who prefers that only his first name be used to guard his privacy. "He made me feel like I owe him something, when he just got paid a $12,000 commission. It felt like a kick in the face."

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Just a few years later, Brian is dishing out thousands of dollars to replace a badly splintered deck, a tired heating, ventilating, and air conditioning system, and a broken window the home inspector—chosen by the real estate broker—didn't catch. He recalls a handful of instances in which his real estate agent should have been more active as they toured the 16-year-old town home that Brian ended up purchasing, including pointing out his end unit's cozy proximity to the busy street. "Now I can't sleep past 7 a.m. because I wake up to the sound of rush hour," Brian says.

If you're a property virgin about to take the plunge, here are some common blunders to avoid—and helpful tips that could mean the difference between financial security and a mountain of debt:

1. Not checking your credit report and score

You've clicked through hundreds of online listings, compared floor plans and square footage, and are eager to jump-start your search. But before you even think of setting foot in an open house, make sure you get a copy of your credit report. The cleaner your credit report and the higher your credit score, the more likely you are to be preapproved for a mortgage at a low interest rate.

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Review your credit report a few months before you begin your house hunt, and you'll have time to ensure the facts are correct and dispute mistakes before a mortgage lender checks your credit. You can access a free copy of your credit report at annualcreditreport.com once every 12 months.

2. Not getting preapproved

After you've assessed your credit report, it's time to establish with a qualified lender how much you can afford. "First-time home buyers need to take the time to get an approval from their lender before looking at homes," advises Ray Boss Jr., a seven-year licensed Realtor with RE/MAX Realty Group in Maryland. "This includes getting a credit check and giving their lender a copy of W-2s, pay stubs, and bank and brokerage statements." Getting preapproved can help you save time by looking for homes that you know you can afford instead of lusting after something out of your price range. And it will put you in a better position over another bidder with no preapproval.

3. Not creating a long-term budget

If the housing crisis proved anything, it's that mortgages were given to people who clearly did not have the means to pay them back. To avoid making this mistake, home buyers should create a budget before even beginning their home search to determine just how much house they can really afford. A good rule of thumb is to devote no more than a third of your monthly household income to housing costs, which include mortgage principal, interest, taxes, and insurance. There are several work sheets available online to help you figure out how your income, debts, and expenses affect what you can afford each month for the next 15 or 30 years.

4. Forgetting about the hidden costs

You grossly underestimated what you can afford to pay each month. You factored in the purchase price of the home but didn't consider the cost of taxes, insurance, utilities, and fees. There are several hidden costs that first-time home buyers neglect to prepare for. They can be anything from the closing costs to appraisal fees, escrow fees, homeowner's insurance fees, property taxes, and even moving costs. Another factor is the cost of repairs and maintenance. "When you're renting and the furnace goes out, what do you do? You call the landlord," says Tom Vanderwell, mortgage officer for Fifth Third Bank in Michigan. "When you own a house, what do you do? You have to fix it yourself." You may find there are numerous "nickel and dime" things to account for that could add up to a significant chunk of money over time.