5 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 a more stressful and expensive situation. 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.

1. Not saving enough for a down payment

More than 68 percent 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. Generally, the more money you put down upfront, the lower your monthly mortgage payment will be.

An old rule of thumb was to make a down payment of 20 percent of your home’s value. For example, if you buy a home for $400,000, a 20 percent down payment would be $80,000. Then you would borrow the remaining $320,000. Making a down payment of at least 20 percent will allow you to avoid private mortgage insurance (PMI), lower the cost of your monthly mortgage payments, and potentially lower your mortgage interest rate.

But the reality is, most homeowners put much less than 20 percent 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. But unfortunately, making a low down payment is one of the biggest home-buying mistakes you can make, since it can make your monthly mortgage payment bigger and require you to pay for PMI. 

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, you might 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 percent down payment, it’s important to 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.

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2. Not saving enough for closing costs

Your monthly mortgage payment and down payment are not the only costs involved in buying a home. A common home-buying mistake is forgetting about closing costs. These are the miscellaneous costs of finalizing a home purchase, such as attorney fees, title insurance, appraisal fees, property taxes, and lender fees. Closing costs can add up to 2 to 5 percent of the home’s purchase price, amounting to several thousand dollars. 

According to the Freedom Debt Relief survey, 59 percent of American homeowners said that 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.

3. Not shopping around for a mortgage

Fifty-seven percent of Americans surveyed wish they would have shopped around more for a mortgage. In addition, 42 percent 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, less 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 rate could help you secure a lower interest rate and better terms. 

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 the credit scoring model used), 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.

4. Monthly mortgage payments are too high

Another common home-buying mistake is locking in an uncomfortably expensive or unaffordable mortgage payment. Fifty-two percent of homeowners told the Freedom Debt Relief survey that their mortgage payments are too high. High mortgage payments may tie back to the fact that many Americans don’t make enough of a down payment. Your property taxes are also likely to go up over time. 

But there are other reasons why Americans might be feeling the squeeze, too. Another survey from Freedom Debt Relief found that 54 percent of Americans can’t handle an unexpected $500 expense.  When people don’t have much cash in the bank, it’s no wonder why 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 out of credit card debt.

5. Not preparing for the costs of homeownership

The final big home-buying mistake is failing to plan for the unexpected costs of homeownership. Owning a home is about more than just making your monthly mortgage payment. There are other ongoing costs like energy, water, homeowners insurance, property taxes, and (if you live in one) homeowners association dues. Along with these recurring bills, you also have to be prepared to pay for random repairs and 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 percent of homeowners in our survey said that home maintenance and repairs were more expensive than they had expected. And if you want to do a major home renovation or remodeling project, prepare for those costs to be more than you planned. 

There are a few general rules for how much money to budget for home repairs and maintenance. Some experts recommend setting aside $1 per square foot per year; so a 1,500-square-foot home would need $1,500 per year for repairs and maintenance. Another rule of thumb is to plan on spending 1 to 2 percent of the value of your home per year on maintenance—so a $400,000 home might need $4,000-$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.

How much of a down payment can I make?

Understanding the upper limit for how much you can put down on a mortgage will have a direct effect on your interest rate, PMI, and monthly mortgage payments. While you may not need to pay the full 20 percent, 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 getting 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 percent 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.