5 Top Homebuying Mistakes Millennials Make

and How To Avoid Them

Yaёl Bizouati-Kennedy

It’s a rough housing market for first-time homebuyers. Between soaring mortgage rates, low inventory — partly due to the “lock in effect” of owners not wanting to let go of the homes they bought with lower rates — and high prices, many of them are left on the sidelines.

For millennial homebuyers, the road to homeownership can be particularly difficult — as this cohort is already dealing with several financial responsibilities, including having a family, resuming the payment of student loans or taking care of aging parents.

Yet, they make up a large part of first-time homebuyers. First-time buyers made up 26% of all home buyers, and 70% of younger millennials and 46% of older millennials were first-time home buyers in 2023, according to the National Association of Realtors (NAR).

Not Differentiating Between Wants and Needs and Wanting It All

Many first-time millennial buyers are guilty of wanting it all, the big, move-in ready house with a garage in a desirable neighborhood “that oozes curb appeal with interiors so pretty they could be featured on Instagram.”

“But that may not be realistic given the high prices of homes, elevated mortgage rates, and lack of homes on the market,” said Clare Trapasso, executive news editor, Realtor.com.

In turn, she said they have to be willing to compromise on square footage, location and amenities to find a home that fits into their budget.

“They should think about what they need versus just what they want,” Trapasso said.

Kurt Carlton, co-founder and president, New Western, echoed the sentiment, saying that the perfect house might not exist, but if a buyer can be flexible and prioritize essential features, this will allow them to focus on what truly matters and get it as close to perfect as possible.

Not Considering All the Costs Involved

While it can be easy to focus solely on the down payment amount — which can be fairly substantial — there are also many homebuying costs that millennials should not ignore, such as closing fees, HOA fees or insurance.

“These can add up and it is super important to look at the purchase holistically,” said Chelsea Werner, global real estate advisor at Sotheby’s.

Michael Micheletti, chief communications officer at Unlock Technologies, further argued that it’s also important to consider long-term costs, such as whether you will have the resources to keep up the home after you buy it.

“Some experts suggest budgeting 1% of the home’s purchase price each year for maintenance; others suggest at least 3%,” he added.

In addition, he noted that there will also be mortgage processing fees for services such as appraisals, loan processing and underwriting.

“Before you start house hunting, It’s a good idea to create a budget that incorporates all home-related expenses. Be honest and realistic with yourself, and you’ll stand a much better chance of not overextending,” he added.

Failing To Make a ‘Home’ Budget and Sticking To It

Additional common mistakes first-time millennial homebuyers make include failing to create a budget and sticking to it, some experts said.

“The first year of home ownership is often challenging, especially for those transitioning from renting to owning,” said Parry Ermogenous, principal broker, owner at NextHome Empire. “It’s crucial to work hard, be conservative, budget properly, and maintain good records.”

Ermogenous added that many new homeowners may underestimate expenses or encounter unexpected repairs despite a favorable home inspection. To avoid these pitfalls, it’s essential to plan ahead, anticipate potential costs and build a “rainy day” fund for unforeseen expenses, he added.

Feeling Married To a Lender

Just because you’ve invested time in the process doesn’t mean you need to sign on the dotted line — buying a home is one of the most important financial decisions of your life, and it’s important to, above all else, be focused on what’s best for you, said Zach Robbins, finance expert, founder, Loanfolk.

In turn, Robbins said that it’s essential for millennials to shop around and “to go deep with a few lenders,” and to not only find the best rate but build a contingency plan if, for some reason, your lead lender can’t perform.

“Comparison shopping is even built into how credit bureaus record credit profile inquiries. For up to 45 days, all mortgage inquiries only count as one inquiry on your credit report. It can be real work, but it can be worthwhile to evaluate multiple deals thoroughly,” he added.

Not Realizing That Paying Debt and Raising Credit Scores Matters

Millennial buyers may not realize how important it is to pay down debt and work on raising their credit scores before trying to buy a home.

As Realtor.com’s Trapasso explained, the higher a borrower’s debt is, the less they can borrow to finance a home purchase.

“Also important are credit scores,” she said. “The higher a borrower’s credit score, the more favorable a mortgage they can secure. Often these buyers will be offered lower mortgage rates and lower fees on their loans. This is because lenders see them as less risky borrowers, who are more likely to make their mortgage payments on time. “

In turn, Trapasso recommended that buyers sit down with a calculator and a list of their daily, weekly, monthly and annual expenses and figure out what sort of mortgage payment they can realistically afford.

“There should be enough left over each month to give them a cushion in case something unexpectedly expensive crops up,” she added, noting that they should also do their best to hold onto some of their savings after purchasing a home.