5 Costly First-Time Buyer Mistakes

Buying your first home is exciting—but it's also one of the biggest financial decisions you'll ever make. And unfortunately, first-time buyers often learn expensive lessons the hard way.

According to the National Association of Realtors, first-time buyers made up 32% of all home purchases in 2024, yet they're statistically more likely to encounter costly surprises during and after their purchase. Why? Because navigating mortgages, inspections, and closing processes for the first time is genuinely complicated—and small oversights can cost thousands.

The good news: most first time home buyer mistakes are entirely preventable. In this guide, we'll walk through five of the most expensive pitfalls we see buyers fall into, and more importantly, how you can avoid them. Whether you're just starting your home search or already have an offer in, these insights could save you serious money.

In competitive markets, some buyers waive home inspections hoping to make their offer more attractive. This is almost always a mistake—and potentially a catastrophic one.

A professional home inspection typically costs between $300 and $500. That investment can uncover issues that cost tens of thousands to repair: foundation cracks, faulty electrical systems, hidden water damage, or failing HVAC equipment. Without an inspection, you're essentially buying a property blind.

Even in a seller's market, there are alternatives to completely waiving your inspection. Consider an "inspection for informational purposes only" clause—you still get the inspection, but the seller knows you won't ask for repairs. Or shorten your inspection contingency period from the standard 10 days to 5-7 days to show you're serious.

The American Society of Home Inspectors recommends always having a qualified professional examine any property before purchase. Your real estate agent may pressure you otherwise, but remember: they're not the one paying for surprise repairs six months from now.

Most first-time buyers focus intensely on their down payment while barely thinking about closing costs. This leads to sticker shock at the closing table—or worse, scrambling to find extra funds at the last minute.

Closing costs typically run between 2% and 5% of your loan amount. On a $350,000 home, that's an additional $7,000 to $17,500 you'll need beyond your down payment.

These costs include lender fees (origination, underwriting, processing), third-party fees (appraisal, title search, title insurance), prepaid items (property taxes, homeowner's insurance), and government recording fees. Your Loan Estimate document, which lenders are required to provide within three business days of application, will itemize these costs—but many buyers don't review it carefully.

How to avoid this mistake: Request a Loan Estimate from multiple lenders early in your home search. Compare not just interest rates, but total closing costs. Some lenders offer lower rates with higher fees, while others do the opposite. Understanding your true out-of-pocket expense helps you budget accurately and negotiate effectively.

Contingencies are contractual protections that allow you to back out of a purchase under specific circumstances without losing your earnest money deposit. In hot markets, buyers often waive these protections to compete—sometimes with devastating consequences.

The three most common contingencies are:

• Inspection contingency: Lets you negotiate repairs or exit if major issues are found
• Financing contingency: Protects you if your mortgage falls through
• Appraisal contingency: Allows renegotiation if the home appraises below the purchase price

The appraisal contingency deserves special attention. If you offer $400,000 on a home that appraises at $380,000, you'll need to cover that $20,000 gap in cash—your lender won't finance more than the appraised value. Without an appraisal contingency, you're legally obligated to find that money or forfeit your deposit.

Before waiving any contingency, understand exactly what you're risking. Talk through scenarios with your real estate attorney or agent. Sometimes the right move is to make a strong offer with contingencies rather than the highest offer without them.

The excitement of homeownership can lead buyers to empty their bank accounts to maximize their down payment. While a larger down payment means a smaller mortgage and lower monthly payments, depleting your savings creates serious financial vulnerability.

Homeownership comes with unexpected expenses. Water heaters fail. Roofs leak. Appliances break. The Federal Reserve's Survey of Consumer Finances found that homeowners spend an average of 1-2% of their home's value annually on maintenance and repairs.

Consider this scenario: You put 20% down to avoid private mortgage insurance (PMI), leaving you with minimal savings. Two months later, your furnace dies in January. That's a $5,000-$8,000 emergency you'll need to finance with credit cards at 20%+ interest rates.

A smarter approach might be putting 10-15% down, paying PMI temporarily, and keeping a healthy cash reserve. PMI typically costs 0.5-1% of your loan amount annually and can be removed once you reach 20% equity. That's a small price for financial security during your first years of homeownership.

Many first-time buyers get pre-approved with one lender and never look further. This single decision can cost thousands over the life of your loan.

Mortgage rates and fees vary significantly between lenders—even on the same day, for the same borrower. The Consumer Financial Protection Bureau found that borrowers who obtained quotes from multiple lenders saved an average of $300 per year compared to those who only considered one option.

Here's what many buyers don't realize: all mortgage inquiries within a 14-45 day window (depending on the scoring model) count as a single hard inquiry on your credit report. You can shop five, ten, or even twenty lenders without additional damage to your credit score.

What to compare across lenders: - Interest rate (fixed vs. adjustable) - Annual Percentage Rate (APR), which includes fees - Origination fees and discount points - Lender credits that offset closing costs - Lock period and extension policies

Don't just look at the big banks. Credit unions, online lenders, and mortgage brokers often offer competitive rates with lower fees. Spend a few hours getting multiple quotes—the potential savings are substantial.

Your mortgage payment isn't your only monthly housing cost. Property taxes and homeowner's insurance can add hundreds to your monthly obligation—and first-time buyers frequently underestimate these expenses.

Property tax rates vary dramatically by location. According to the Tax Foundation, effective property tax rates range from 0.31% in Hawaii to 2.23% in New Jersey. On a $350,000 home, that's the difference between $90/month and $650/month.

Homeowner's insurance has also increased significantly in recent years, particularly in areas prone to natural disasters. Before making an offer, research the property tax history (often available on county assessor websites) and get insurance quotes for the specific property. These costs should factor into your budget just as heavily as your principal and interest payment.

First time home buyer mistakes are common, but they're not inevitable. By understanding these five costly pitfalls—skipping inspections, underestimating closing costs, waiving contingencies, draining savings, and failing to shop lenders—you can approach your purchase with confidence and protect your financial future.

The theme connecting all these mistakes? Rushing decisions under pressure. The homebuying process moves quickly, and it's easy to make concessions you'll regret. Take time to understand each step, ask questions when something doesn't make sense, and remember that walking away from a bad deal is always an option.

Your first home is an investment in your future. Make sure you're starting that journey on solid financial ground. For more guidance on navigating the homebuying process, explore our complete guide to buying your first home, where we break down everything from getting pre-approved to closing day.