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Is Colorado home, or just a stop along the way? The answer may vary for each of us, but it’s an important question to ask as you consider Colorado housing. If you plan on living here for the next (roughly) four years, Zillow’s breakeven horizon will tell you that you’re better off buying a home.* Let’s face it, renting doesn't offer a lot of cost savings. Why not invest in something that can increase your wealth?
Of course, there’s a bit to consider before making such a commitment. With these four tips, you can feel prepared for an easy home buying experience.
1. Your credit score is a major factor in mortgage approval
A credit score isn’t everything when it comes to mortgage approval, so don’t shy away from applying just because you think your score is low. But keep in mind, the stronger your score, the better your rate and terms.
Why is that?
Higher scores indicate you’ve handled debt well in the past, and you’ll probably continue to do so.
Lower scores demonstrate you’ve made poor financial choices in the past, and you may have trouble repaying a loan.
When it comes to interest rates, banks set them (the APR or annual percentage rate) based on the risk you pose. If you appear to be high risk, expect a higher interest rate or even mortgage denial. The bottom line — If your credit needs improvement, work on it.
2. You don’t have to put a lot down
The largest upfront cost will be your mortgage down payment and closing costs. First things first, is a 20% down payment really necessary? Not anymore.
If that is too much of an upfront cost for you, ask about programs that can get you into a home for even less money down. Qualified buyers may be looking at $1,000 or less in down payment requirements.
Colorado Housing and Finance Authority (CHFA) loans can get you into a home for as little as $1,000 down, as long as you meet CHFA guidelines for income, credit score, and debt-to-income (DTI) ratio. If you do qualify, you may even receive help with closing costs.
The Chenoa Fund provides down payment assistance money that works hand in hand with FHA loans (ultimately covering your required 3.5% down payment) or HomeReady loans (covering your 3% down payment and 0.5% of closing costs)...meaning you may be able to get into a home with a $0 down payment.
Keep in mind all loan programs have their own qualifications tied to them, so you’ll need to speak with a mortgage lender to understand which may be available to you.
3. You need a clear understanding of your budget
Once you feel comfortable with your ability to make a down payment, you’ll need to understand how much money you have available for your monthly mortgage payment. There are a few ways to do this.
Try a mortgage calculator. You’re able to enter your monthly budget and expected down payment to see how much you can spend on a new home.
Start the mortgage pre-approval process. You’ll have your finances reviewed by a loan officer, and you can obtain a pre-approval letter telling you how much of a loan you qualify for. Depending on your lender, that letter may be good for up to 90 days, and it can be used when you are shopping for homes. Most sellers feel more confident about creating a contract when a buyer has a pre-approval letter.
4. You have to (be ready to) move fast
Homes come off the market as quickly as they’re listed. In fact, more new listings came on the market during 2018 than we’ve seen in five years, helping bring more inventory and giving buyers more choices. Over 68,000 Colorado homes for sale were listed during 2018.
Hire a realtor. If you haven’t done this yet, make it a priority. A local real estate agent can help you understand which neighborhoods are a good fit for your living preferences and budget. He or she can get showings lined up quickly and can help you write an offer letter.
Subscribe to a notification list. This could be as simple as an automated email from your realtor letting you know when homes in your desired neighborhood go on the market. Or, you can subscribe to emails from sites like Zillow, Redfin, or REcolorado.
Whether you’ve been here a lifetime, transplanted here a few years ago, or are new to the area — welcome! The Centennial State has so much to offer including a variety of housing options. If you’re interested in buying, know your financial options and understand what you need (or desire) in your home, sweet, home. That way, whether you’re passing through or settling in forever, you’ll be more likely to enjoy (and profit from) your time in the Rockies.
Ready to buy a home in Colorado? Find a loan program that fits your budget.
*Considering the current Denver market home price of $405,000 with a 3% down payment vs. a monthly rental payment of $1,800.
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