Is it better to buy or rent a home in Colorado? 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?
“At American Financing, many of our borrowers are paying a mortgage that’s very close to past rent payments, said Director of Purchase Sales Jason Bates. “On top of it, they’re able to receive tax deductions and gain equity — which really pays off in the long run.”
Of course, there’s a bit to consider before making the commitment to buy a home. But with these four tips, you can feel prepared for an easy Colorado home buying experience.
1. The healthier your credit score, the better your rate
A credit score isn’t everything when it comes to mortgage approval, but it’s important to 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.
To put it simply, if you appear to be high risk, expect a higher interest rate or even mortgage denial. If your credit needs improvement, work on it before you buy a home.
2. You don’t need a significant down payment
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. Mortgage pre-approval is a difference maker
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.
● 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. They can really help the home buyer stand out amongst the competition.
● If you’re a year out or so, then 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.
4. Follow your realtor’s lead
And always answer your realtor's call. 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.
● Decide where you want to call home. There are so many wonderful communities in Colorado. If you haven’t pinpointed “home” just yet, make it a priority. This is crucial for those looking in the Denver area where commutes can be frustrating should you choose a suburb a tad too far from work.
● 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.
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.