11 Things First-Time Buyers Always Get Wrong About Buying A House

First-timers often get incredibly excited when they hit their down payment savings goal. After identifying an affordable price range and setting a savings target to facilitate the purchase, hitting this magic number can feel like a gigantic win. Finally, getting over the hump on saving for a down payment is a massive accomplishment, but it isn’t the only expense you’ll need to set money aside to cover when purchasing your first home.

Experts in the industry consider 25% of the sale price a healthy target. Of course, this figure will change based on your circumstances and the down payment you opt to contribute to close the sale. However, to cover the classic 20% down, adding another 5% gives you the financial standing to handle closing costs and the expense of moving into the home without dipping into other savings or relying on a credit card to finalize the purchase. You may also be moving from a fully furnished apartment, adding the need to buy a bed, couch, and other essentials almost immediately. With added funding set aside, these tertiary costs won’t add a squeeze to your wallet as you prepare to experience the joy of becoming a homeowner.

Only getting one mortgage quote.

Shopping around for mortgages can save you thousands over the life of the loan. A mortgage is the most extended lending product that typical consumers will ever negotiate and use. It’s also connected to the highest dollar-value asset that most people will ever purchase. This means that getting the right mortgage product is crucially important for every buyer. Unfortunately, the lending landscape is challenging to navigate for those who’ve never experienced the homebuying process before.

It’s easy to briefly look into average repayment terms and settle on the first quote you get if it’s roughly in line with this figure or perhaps undercuts the average. Buyers, regardless of location, price range, or any other factor, should seek out quotes from three to five lenders before settling on any specific mortgage product. The difference in just one percentage point means a change in the monthly payment amount of about $100. Saving $100 a month with a lower interest rate results in an extra $1,200 in your pocket by the end of just the first year. This additional capital can go toward paying down the principal directly, or it might help you enhance your retirement savings or yearly travel budget. Similarly, different lenders might offer the same rate but charge different origination fees or tack on other costs. Simply put, comparison shopping can offer a dramatically improved path forward financially.

Considering just one down payment option

In the same way that a single mortgage quote shoehorns a buyer into a particular direction for their homeowning future, considering only one down payment option is equally limiting. Today, the standard 20% down payment is no longer the monolith that it once was. The average first-time buyer pays just 6% down on their home purchase, allowing for a drastically more realistic savings target, among other financial mobility benefits that follow along.

If you’re able to retain some input into how much cash you’ll contribute upfront, mulling this over is crucial. By offering up the traditional 20%, you’ll avoid paying PMI tacked onto the loan. This is a big deal, considering that private mortgage insurance protects the bank and not the buyer. An ownership share of less than 20% comes along with this added cost that typically falls between 0.2% and 2% of the loan amount per year. Getting over the 20% equity hump means you can shed the added cost of financing the bank’s insurance, but every individual buyer’s financial needs will be uniquely their own. If you can afford to put down 15% rather than 10%, for instance, that additional step closer to the PMI threshold might be worth it for your financial math. However, for some buyers — like those who might be gutting and rebuilding an old property and therefore need all the cash they can hold onto — a rock bottom down payment might make more sense.