3 Things to Know Before Purchasing a Home in Colorado
When it comes to purchasing a house in Colorado, the stakes are high and securing your dream home can seem overwhelming
When it comes to purchasing a house in Colorado, the stakes are high and securing your dream home can seem overwhelming. Over the past year, new listings have risen 1.7% in the state, according to the Colorado Association of Realtors. Still, this much-anticipated new inventory has done little to help buyers achieve their dream of homeownership.
This spring, new listings inundated the housing market. But these homes don’t last long ̶ hurting buyers as listing prices continue to rise. In fact, the April Colorado Housing Market Report states that the median price for single-family homes has reached a new record at $445,000 in the Denver metro area.
We know that purchasing a home should be an exciting time in your life. However, in the spring and summer there is an increased demand in the housing market. There may be added pressures, such as lack of inventory and price wars that can make buying a home stressful.
Focusing on known items that can help alleviate stress and potential surprises during the home buying process is advantageous for everyone. Here are a few items to consider before purchasing your new home so that you are prepared and ready to secure the property in the fast-paced Colorado housing market.
Establish a Budget
When looking for a home, it is important to have an established budget in mind. Your mortgage professional can help you determine how much you should consider purchasing and help you align your long-term financial goals with your budget.
When working on your budget, it is important to know you might be pre-approved for a larger loan amount than what you are comfortable spending. A mortgage payment is often amortized for 30 years, so keep in mind you will be making this payment for many years. The bank will qualify you based on monthly figures. Try to keep your house payment below 30% of your gross monthly income (before taxes) and your house payment plus your monthly debts at or below 43%.
Think About Credit
When you apply for your loan, the bank will order a credit report which will provide your entire current and past credit payment history along with a credit score. TransUnion, Experian and Equifax all have a different scoring model therefore your credit score will vary from each agency. Most banks prefer a score of 640 or higher for financing.
You are entitled to one free credit report from each of the three major reporting agencies per year. One of the best ways to obtain this information is through AnnualCreditReport.com.
Prepare for a Down Payment
Down payment availability varies by loan program. Conventional and FHA loans offer as little as 3 percent to 3.5 percent down payment while VA loans offer zero down payment loans.
The more money you apply to your down payment, the better your equity position is on your new home. Also, if you provide a 20% down payment, you will avoid paying the required monthly private mortgage insurance premiums.
Your mortgage professional can help you determine how much is needed based on your budget and will walk you through all the options.
Start the Hunt
As you begin to look for your home, keep in mind this is a great addition to your financial portfolio and opens future financial avenues for you. A home can also be a great source for equity. Down the road, you may want to consider consolidating debt or opening a home equity line of credit (HELOC) to make improvements to your home.
With Colorado’s strong economy, it is a prime time to be selling and buying a home. And with the right assistance and planning, this life event milestone can be both personally exciting and financially rewarding.
Diane Hughes is the senior vice president and mortgage lending director at UMB Bank. She can be reached at Diane.Hughes@umb.com.