It’s time. Your dream of being a homeowner on the Front Range of Colorado is coming true. But, what first steps should you take? As you explore the Colorado real estate market, you’ll have to demonstrate your financial stability to lenders, real estate agents and sellers. Here are a few ways to get started.
Money Matters: Buying a House on Colorado’s Front Range
While browsing floor plans online and attending open houses fuel the fire of future homeownership, evaluating your financial resources and understanding how much home you can afford is imperative.
Most homebuyers in Colorado need to borrow money or get a mortgage to purchase a home. When applying for a mortgage loan, the lender will look closely at your finances, credit history and previous payment history to determine if you’re a low-risk borrower. Here’s how to get ready for that first meeting with a loan officer.
Review your FICO® credit score.
There are several reporting agencies that keep a tally of your credit history, including how you use credit cards and manage other loans (think cars or college). This information is reflected in your FICO® credit score.
Being aware of your score can help you understand how a lender will initially evaluate your financial health. The three major consumer credit bureaus are Equifax, Experian and TransUnion. Each will summarize your financial information and provide a score, ranging from 300 to 850.
At Elevations Credit Union, we work with potential homeowners to offer ways to improve their credit scores and better position them for a successful loan experience. Often, mortgage interest rates vary based on your credit score, with higher scores triggering lower interest rates.
Between now and speaking to a lender, work to stabilize or boost your credit score by not taking on any additional debts (like an auto loan), paying down your current credit card balances and making all current loan payments on time. Work to keep your debt-to-income ratio below 43%.
Prepare a down payment.
When you buy a home, you typically have to come to the table with some cash in hand. A lender will look at your liquid assets and know that you’re serious about investing in a home if you’re able to offer a down payment upfront. In Colorado, it’s common (but not mandatory) for new homebuyers to set aside up to 20% of the home’s purchase price for their down payment. However, Elevations offers low down payment programs, and the money for your down payment could also be a gift from a relative.
The standard 20% down payment means that if you’re eyeing a beautiful ranch-style property that’s selling for $450,000, you’ll want to save up approximately $90,000 for a down payment. The 20% down payment will allow you to both avoid private mortgage insurance (a fee that protects your lender) and show good faith in making this sizable purchase.
If you’re short on funds, there are options to get a mortgage with as little as 3% down. These options can make homeownership a reality when you don’t have a large down payment available, such as opting for a mortgage with a home equity line of credit. So, don’t be discouraged!
Start saving now. As you prepare to buy a home, tucking away every extra dollar for your down payment will make the cost of the loan less. Can you opt for a minimalist vacation this year? How about swapping one restaurant outing a week for a meal made at home and tucking the extra into your savings account? And if you have anything lingering around your home that you don’t use, maybe ATVs, an RV or exercise equipment, sell them!
List your income and responsibilities.
Knowing your credit score and having a down payment ready to go shows you’re prepared for a substantial financial investment. Now, get ready to share a snapshot of how money flows in and out of your life over time.
Plan to prove your income. This will include providing paycheck stubs or 1099s, alimony, child support, tax returns and statements from financial institutions including checking, savings and investment accounts such as IRAs or mutual funds. Your lender will want to see how you manage your income and that it’s reliable.
Then, be prepared to go over your current expenses. These might include a house/land payment, rent, utilities, vehicle loans, college loans or credit card debt.
Finally, list any assets you currently own. Whether it’s a vacation home, an RV or land in Colorado, your lender will want to know about these to better understand your overall financial commitments.
Taking a mindful look at your current financial health will help both you and your lender decide if buying a home in Colorado at this time is the right move for you. If you’re ready to start exploring mortgages, use our simple online tools or attend one of our helpful homebuying seminars to understand more about the loan approval process, down payment options and closing costs. We’re here for you every step of the way on your journey to being a Colorado homeowner.