Buying a house is no simple task, but the benefits of home ownership may weigh in your favor. If you are a current renter, just think of your neighbor stomping around in the apartment above, fighting for parking when you come home, or when your landlord raises your rent.
Yes, housing costs in Denver have skyrocketed. Sure, maybe your income isn’t keeping up. I won’t deny that student loan debt is at an all-time high. People are getting into their first home at a later age than their parents—if at all. The challenges of achieving home ownership are different today than they were, say, 20 years ago. It may seem impossible, but I assure you it’s not, and there is a bright side. The steps needed to buy a home will improve your financial health. Once you achieve home ownership, you’ll also receive some exceptional life-changing benefits:
· Your housing costs freeze. While rent continues to rise, you can expect your mortgage payment to stay the same.
· Your mortgage ends! When you pay it off, you’re done. Say hello to financial independence.
· You create a future source of wealth. Those mortgage payments go toward building equity. You can use it to secure an equity loan or sell it for the current value, which may have gone up.
· You control your house. Feel free to install that fireman pole from your closet into the kitchen. The nine-year-old version of you would be proud.
To Catch a Mortgage
To get started, you’ll need to identify what you can afford. Use an online calculator to help you out. This can change based on your income, how much debt you already have, and how much you have saved for a down payment. If you’re not in a place to afford a home yet, then these will be the things to work on.
1. You need to save how much???
Saving for a down payment is the biggest hurdle for most people. Traditionally, a mortgage down payment is 20% of the price of the home. The median home price in Denver is more than $400,000 in 2019. For most people, an $80,000 down payment is simply not realistic. Luckily, other options are available. There are mortgage programs offering low down payments, or even down payment assistance. You could get a mortgage with a 3% down payment. The catch is that you’ll have to pay mortgage insurance.
Don't forget about closing costs! These can vary, but prepare to pay between 2% and 5%. Assuming a 3% down payment with 2% closing costs, you’ll need at least $5,000 saved up for every $100,000 for your home.
2. Your Debt to Income Ratio
Another common hurdle is loan debt. If you have debt, both saving money and qualifying for a mortgage can be hard. Your debt payments, including a mortgage, should be capped at about 40% of your monthly gross income. If you have debt, reduce it or pay it down. The Denver Financial Empowerment Center is a great place for help in creating a plan to reduce your debt. You can also get free financial coaching with Denver Community Credit Union.
3. A Healthy Credit History
Your credit score can also affect your rate and whether you can get approved for a mortgage. A good rate will mean a more affordable mortgage. The best ways to improve your score is to stay under 30% of your credit limits and make regular, on-time payments.
You will want to make sure your credit report is correct. Check your credit history once a year for free at annualcreditreport.com. If you find a mistake on your credit report, you will want to make sure it gets resolved by making a dispute with the credit bureaus.
Get Started on the Journey to Home Ownership
There are resources and programs available to you. You don’t have to do it all alone. Denver Community Credit Union can provide the information you need to get started. Learn more about home ownership in only a few minutes with our free E-Learning courses. Connect with a local mortgage expert for more help. Visit DenverHomeLoan.org today to get started on the right path.
Denver Community Credit Union is an Equal Housing Opportunity Lender. NMLS # 441717