Buying your first home is always a challenge, but 2025 presents extra hurdles. Mortgage rates remain high, competition is tight, and navigating the process without guidance can lead to expensive errors. This guide highlights the most common mistakes first time buyers make in today’s housing market—and how to avoid them.
Let’s walk through what you need to know before locking in your loan type or making an offer. Avoiding these pitfalls could save you more money now and over the life of your mortgage.
Too many buyers in 2025 are stuck comparing rates to the past. It’s true that mortgage interest rates are higher than what we saw in 2020–2021, but waiting for them to fall may not help you.
What’s happening now is more likely the “new normal,” driven by federal reserve decisions, inflation, and housing demand. According to the Consumer Financial Protection Bureau, rate hikes have a major impact on affordability, especially for first time buyers with less home equity.
Many factors influence mortgage rates:
Understanding what moves mortgage rates helps you better time your purchase or rate lock decision.
First-time buyers in 2025 are facing a very different real estate landscape than in past years. After multiple rate hikes by the Federal Reserve, affordability is tighter and competition has shifted. According to Freddie Mac, mortgage interest rates reached new highs last week, putting added pressure on buyers with limited budgets.
While data ranges show some softening in home prices in select areas, high borrowing costs mean your monthly payment could still be a stretch. It’s more important than ever to compare multiple lenders and get quotes from other lenders beyond your first offer. Even a slightly lower interest rate can save you thousands over the life of the loan.
It’s easy to get preoccupied with a number—“we’re buying a $300,000 house!”—but that number doesn’t tell the full story. You must plan your budget based on your monthly mortgage payment, not just the total purchase price.
Your estimated monthly payment includes:
You’ll also want to consider:
If your lender doesn’t provide a detailed monthly payment breakdown, ask for it. Better yet, use online tools or a HUD-certified housing counselor to help you estimate your mortgage payments accurately.
Many buyers pick the loan with the lowest rate—or worse, the lowest monthly payment—without understanding the risks. But your loan type affects more than your interest rate.
Make sure your loan officer explains the loan term, total cost, and which programs you qualify for based on income, location, and buyer status.
It’s tempting to go with your bank or the first lender who pre-approves you. But not all mortgage lenders are created equal. Comparing even 2–3 offers could save you thousands.
Shop around for the best mortgage lenders. Working with multiple lenders can help you uncover better loan options, lower interest, or waived fees. Even if the interest rate is similar, one lender might offer a better overall deal.
Read our full breakdown of different types of mortgage lenders before you decide.
In today’s competitive market, not being pre approved can cost you the home. A solid mortgage pre approval gives sellers confidence and allows you to act fast.
A pre approval is more than a quick online form—it means a lender has reviewed your:
Getting pre approved also helps define your loan amount and target price range. Avoid confusing mortgage pre approval with mortgage pre qualification, which is less thorough and often less useful in a fast-moving market.
Too many buyers save up for their down payment but are blindsided by closing costs, which can add thousands to your upfront expenses.
Typical closing costs range from 2–5% of the purchase price and may include:
Always ask for a Loan Estimate document, which lists every fee and total cash to close. If needed, talk to your lender about lender credits or closing cost assistance.
A rate lock means your lender guarantees your mortgage interest rate for a set time—often 30 to 60 days. In a volatile market, this protects you from interest rate increases while your loan is processing.
Always ask how long the lock period lasts and whether the locked rate includes discount points.
Your credit report plays a major role in your mortgage interest rate and loan approval. Yet many first time buyers don’t check their reports until it’s too late.
Mistakes on your credit file could increase your interest, force you into a more expensive loan type, or even cause a denial.
Improving your credit by even 20–30 points can make a big difference in your monthly mortgage payment and actual rate.
It’s easy to focus only on the lowest rate, but that number doesn’t always mean you’re getting the best deal.
Lenders may offer a lower average rate by:
Focus on the total cost of the loan across the full loan term, not just the teaser number. Look at estimated monthly payment, interest payment, and total interest over the life of the loan.
In 2025, the average down payment amount for first time buyers is much less than 20%. Several programs help reduce this burden:
Even if you don’t hit 20%, you can often get favorable terms and low mortgage interest rates, especially with strong credit and home equity potential.
Learn more from our 5 Helpful Home Buying Tips.
Buyers often default to a 30-year fixed rate mortgage, but this isn’t always the best option. Depending on your income, goals, and how long you plan to stay, a 15-year fixed mortgage or 20-year fixed could save you tens of thousands.
Choosing the right year fixed mortgage depends on your income stability and future plans. Don’t assume one size fits all.
The Federal Reserve doesn’t directly set mortgage interest rates, but it influences them by setting the federal funds rate. When the Fed raises or lowers this rate, lenders adjust how much they charge on mortgages.
Every federal reserve decision creates a ripple effect:
Understanding the housing market in context helps you make smarter choices on when to buy, lock a rate, or refinance your current mortgage.
Buying a home is more than just getting shelter; it’s building wealth. Your goal should be to build home equity steadily over time.
Thinking ahead prevents you from becoming “house poor” and positions you to upgrade or refinance later with better terms.
Skipping or rushing through a home inspection can lead to costly surprises. Always hire an independent inspector and give yourself time to review findings. Look out for:
Also review your title insurance policy to ensure clear ownership and no liens or encumbrances.
Let’s say you qualify for a $300,000 loan. Here’s how your payment shifts based on the mortgage interest rate:
That’s a big difference—more than $700 per month—based solely on the rate. The right loan and timing matters.
In a tight housing market, it’s easy to get emotionally invested in a specific home. But emotional decisions often lead to overpaying, skipping due diligence, or ignoring financial red flags.
Use data to guide you:
Data makes sure you’re buying the right house, not just falling in love with one that’s out of reach.
Some buyers assume their quoted rate lasts forever. But a rate lock only protects you for a set lock period—typically 30, 45, or 60 days.
Miss your closing date? Your locked rate may expire. And if interest rates have gone up, your new payment could be hundreds higher.
Ask these questions:
Smart buyers plan their timeline carefully and keep an eye on current mortgage rates throughout the process.
Your mortgage rate matters, but so do:
One lender might offer a slightly higher interest rate, but better service or fewer headaches. Another might offer a faster close that helps you beat out other buyers.
Look at the competitive rates AND the full package. A lender who understands first time buyers can often make up for a tiny difference in average rate.
Explore some first-time homebuyer mistakes that stem from lender missteps.
Talk to friends, family, or online communities about what other home buyers are paying. Are their interest payments similar? Did they negotiate better terms?
Comparing notes helps you:
Use sites like Nerdwallet’s mortgage guide to benchmark offers.
In today’s market, even the best-prepared buyer can experience delays. These might come from:
Always build in extra days into your closing contract. Delays can cost you your rate lock, increase costs, or kill the deal.
Over 30 years, even a 0.5% higher interest rate can mean paying tens of thousands more in total interest.
For example:
That’s an extra $36,000 in interest for a 0.5% difference.
This is why it’s essential to understand:
Buying now doesn’t mean being stuck forever. As mortgage interest rates shift, you may have a chance to refinance your home loan.
But refinancing isn’t guaranteed. You’ll need:
Plan ahead now so that when lower mortgage rates become available, you’re in a position to take advantage.
This is a repeat from our list of 10 First-Time Home Buyer Mistakes, but it’s worth saying again: do not skip homebuyer education.
A good course will walk you through:
It may even be required to qualify for certain loans or assistance programs.
Many of the mistakes listed here can be avoided by starting your journey with proper guidance. Homebuyer education gives you a full understanding of the mortgage process, including how to compare loan options, estimate your monthly payments, and navigate a high-interest market. In fact, many payment assistance programs require that you complete a certified course before applying.
If you’re buying your first home, don’t skip this step; sign up for one of our First-Time Homebuyer Education Classes and make sure you’re fully prepared to make the best financial decisions in today’s housing market.
