11 First Time Home Buyer Cost Traps

Buying your first home is exciting, but small decisions during the mortgage process can affect what you pay. From comparing rates to budgeting for closing costs, Levo Mortgage Loan Officer Tyana Viss explains 11 common first-time homebuyer mistakes and shares practical ways to avoid them.

1. Accepting the First Mortgage Rate You’re Offered

Many first-time homebuyers apply to only one lender and sign the paperwork without looking elsewhere.

Compare at least 3 quotes before committing to a lender, as they can vary widely from one institution to the next. Compare the annual percentage rate (APR), the origination fees, and any discount points of each quote.

Inquire with Levo Credit Union® first. Levo is known for lower closing costs & fees, in-house underwriting that makes the process fast and easy, and personalized guidance.

Even a small rate difference can add up to thousands saved over a 30-year loan. 

TOOLS: Use the Mortgage Calculator to estimate your monthly payment. 
DIG DEEPER: James Encourages Members To Compare

2. Assuming You Need 20% Down

A huge myth is that you need 20% down to purchase a home. A larger down payment helps reduce monthly costs, but it is not required for most loan types.

Depending on the loan, down payments may be as low as 5% for conventional loans, 3.5% for FHA loans, or 0% for eligible VA and USDA borrowers. Waiting to save 20% down could mean paying more as home prices rise. Some states offer first-time buyer programs and down payment assistance, which can lower your down payment.

Levo members in South Dakota can take advantage of the First-Time Home Buyer Program, which often provides a nice credit towards closing costs.

3. Underestimating Closing Costs

At closing, you will need more than just the down payment. Closing costs typically add 3% to 6% of the home's purchase price and may include lender fees, title insurance, appraisal charges, escrow deposits, and prepaid taxes.

For a $300,000 home, that could mean budgeting an additional $9,000 to $18,000 at closing.

When comparing lenders, ask for a Loan Estimate, a standardized form that lays out your projected loan costs line by line, helping you compare offers and plan for closing with fewer surprises.

Levo keeps the fees associated with financing a home sensible and minimal. Our origination fee is just 0.75% of the loan amount.

RESOURCE: The Consumer Financial Protection Bureau's Loan Estimate Explainer

4. Ignoring Your Credit Score Until It's Too Late

Your credit score plays a major role in your mortgage rate. A 40-point difference could change your rate by a quarter of a percentage point or more, potentially adding (or saving) thousands to your total cost over the life of the loan.

Check your credit report at least 6 months before applying. Dispute errors, pay down existing debt, and avoid opening new accounts while you prepare to purchase your first home.

You can request a free credit report once a year at annualcreditreport.com.

DIG DEEPER: How Your Credit Score Affects Your Buying Power
DIG DEEPER: How To Improve Your Credit Score

5. Skipping the Pre-Approval Step

House hunting before you get pre-approved is like going grocery shopping hungry: you may look beyond what fits in your budget. Pre-approval shows how much you a lender may be willing to finance based on your income, debts, and creditworthiness.  

Levo makes getting pre-approved simple.

Knowing your budget helps you focus on the homes you can afford and shows sellers that you are a serious buyer, which may give your offer an edge in a competitive market.

Pre-approval shows what you may qualify for, not what you can comfortably afford. Review your income and expenses to choose a monthly payment that fits your budget.

6. Forgetting About Property Taxes and Insurance

Your monthly mortgage payment includes more than principal and interest. It may include escrowed property taxes and homeowners' insurance, plus possible flood insurance or HOA dues.

Ask for an escrow estimate during pre-approval so you can plan for the full monthly cost—not just the loan payment.

7. Making Big Purchases Before Closing

Once you're pre-approved, it’s best to keep your finances steady through closing.

Opening new accounts, such as credit cards, financing furniture, or buying a car, adds new debt. This raises your debt-to-income ratio, which lenders review when they pull your credit again before closing. That change could affect the amount you qualify for, your interest rate, or even your loan approval.

DIG DEEPER:  Insider Tips on Homebuying From Actual Lenders

8. Waiting for the Rate to Go Down

Waiting for interest rates to fall may seem like the smart move, but no one can predict how the housing market will change. Home prices may continue rising while you wait, which could reduce your buying power and cost you more over the life of the loan.

DIG DEEPER: The Real Cost of Waiting to Buy A Home

If you find a home that fits your budget, talk with your lender about your options. If rates fall later, refinancing may be worth considering, depending on your loan terms and closing costs. 

If rates do go down, Levo's lending team can run the numbers to help you explore different options.

9. Choosing the Wrong Loan Type

Not all mortgages are created equally, and the wrong loan type can cost you thousands. FHA loans have lower credit requirements but include upfront mortgage insurance premiums. Conventional loans may save you on insurance if your credit is strong.

VA loans and USDA loans come with unique benefits for eligible borrowers, including zero-down options. Each program has its own fee structure, so the best option depends on your personal financial profile.

Levo offers a variety of mortgage loan types to fit your needs. 

10. Draining Your Savings for the Down Payment

Putting every last dollar toward your down payment might sound responsible, but it leaves you vulnerable if an emergency occurs. If the water heater fails in month two, you'll need cash on hand to have it repaired or replaced.

Aim to keep at least three to six months of living expenses in reserve after closing. That cushion protects you from turning to high-interest debt when an emergency hits. 

DIG DEEPER: Build an Emergency Fund for Life's Unexpected Expenses

11. Not Budgeting for Ongoing Homeownership Costs

Maintenance, repairs, and utilities can add up quickly after you move in. Consider setting aside 1% to 2% of your home's value each year for upkeep. On a $250,000 home, that's $2,500 to $5,000 annually for expenses like HVAC service, plumbing repairs, and appliance replacements.

Building and maintaining a home repair fund can help cover unexpected costs. 

A Super Shares savings account at Levo offers members a higher dividend rate and limits monthly withdrawals, which can help keep savings set aside. Automatic transfers can make it easier to build your savings consistently.

How to Keep Your Mortgage Costs in Check

When you check your credit early, compare lender quotes, and budget for the full picture, you put yourself in control. The easiest way to save on your mortgage as a first-time homebuyer is to do a little preparation and planning and to have a lender who goes the extra mile for you.

As a member-owned, not-for-profit credit union, Levo puts your goals at the center of the homebuying process. Levo's experienced lending team offers competitive rates, transparent fees, timely decisions, and responsive communication.

Ready to take the next step? Become a member today and connect with a local mortgage team that puts your goals first.

About Tyana Viss
Tyana Viss has been part of the Levo team since 2012 and brings more than 15 years of mortgage lending experience. She holds degrees in business management and economics. As a Mortgage Loan Originator, Tyana is committed to making the mortgage process straightforward and manageable, helping you navigate each step along the way.