Denver is a great city, full of fun things to do and wonderful areas in which to live.
Are you pining for the day you can buy a house in one of its neighborhoods?
And just how do you figure out how much house you can afford?
At Usaj Realty, we're here to help navigate Denver home prices, and find the home that's perfect for you!
Tips for the first time home buyer
Congratulations! You're considering buying your first home, a very exciting time indeed. Here are a few things to keep in mind:
- Your job: Buying a home is a big commitment so having stability in your employment will help relieve at least some stress during your home buying process. Starting a new job and buying a new home at the same time may mean you're not giving either one the attention they deserve.
- If you're a newlywed: Much like having a new job, having a new spouse can be a fun yet stressful time. It might be a good idea to wait for 6-12 months after you've gotten married before buying a new home.
Just like going to the dentist twice a year, it's a good idea to regularly keep an eye on your credit reports.
Knowing which ones your lender uses or prefers is helpful so you can focus on those specific ones. Sites like Credit Karma and Credit Sesame can give you insights into your spending habits, as well as suggestions on lenders and other helpful financial information.
Needs vs. wants
There are many factors that go into your decision to buy a particular house:
- Which neighborhood is it in?
- How far is it from work?
- Is there good access to restaurants and entertainment?
You likely won't be able to get every single thing you want in a home, though with good planning you may be able to get more than you thought initially.
It's important to prioritize the deal-breakers, like the number of bedrooms/bathrooms, and the nice-to-have amenities, like a hot tub.
Make sure to read our list of the top 10 things buyers look for in their new home.
Let's get started
You've checked your credit and things are looking good. You've made a list of needs vs. wants for your new home. Now it's time to look at your income to figure out which houses fit both your needs and your budget.
Putting your money where your house is
There are a few ways to estimate how much house you can afford, depending on where you are in the process.
Keep in mind these tools often only take into consideration the total monthly payment. You'll still need to figure out how much things like insurance and property taxes will cost. These items will need to be added to the cost of the house to determine your total monthly payment. And don't forget about utilities, homeowner association fees and maintenance costs for your home and appliances.
Today, there are many different down payment options. A larger down payment often allows for the best interest rate and lowest monthly payment. However, there are an assortment of options, especially for first-time home buyers. If you are in the military or have previously served, you may be eligible for a VA loan.
Monetary gifts from friends and family may be used towards a down payment, and make sure you check into state assistance programs that may help.
Let's look at the 28/36 rule, which gives you a rough estimate of what monthly payment you can afford.
It's a quick way to look at your income vs. debt (both housing and other), to determine how much house you can get. It looks like this:
Your monthly housing payments shouldn't be more than 28% of your gross income (and really should be less, if at all possible).
- Example: If you make $5,000 a month, 28% means a $1,400 total monthly payment for your new house.
Your total debt-to-income ratio shouldn't be more than 36% of your gross income. This means everything you owe on a monthly basis, like car loans, student loans and credit cards. And because hopefully soon you'll also own a new house, that payment needs to be included.
- Example: If your other monthly debt is $500, added to the $1,400 housing payment means you'd be at 38%. Lenders have underwriting rules, and as much as your banker may like you personally, they can't break those rules. You'd need to either reduce your monthly debt or look at homes that have a lower monthly payment.
Lenders will often have mortgage calculators on their sites. They want to make it easy for you to figure out how much you'll be able to borrow, and they'll also give you options on the various types of loans they offer.
BankRate has an easy-to-use calculator that includes variables like your credit score. It shows today's mortgage rates and a list of lenders, all in one list.
Once you've figured out much house you can afford, it will be much easier to look at Denver house prices and find your perfect place.
Pre-qualified vs. pre-approved
Buying a house is a process, probably unlike anything you've experienced before (especially if you're a first-time home buyer).
It can be exciting when a lender tells you that you're pre-qualified for the amount that would allow you to buy your dream house.
But ... pre-qualified doesn't mean you're pre-approved.
A pre-qualification is a quick process, simply based on the info you've provided. In order to pre-approved, a much more in-depth analysis must be done. Learn the differences of pre-qualified and pre-approved.
Don't spend it all in one place
While you want to maximize the house you can get for your budget, don't put every available penny into the down payment or into your monthly payment for that matter. Save some for the things that come along with home ownership, like replacing an appliance or hot water heater that unexpectedly breaks down.
You're ready to investigate Denver house prices
You've reviewed all the financial aspects of owning a home, and you've got your list of things you'd like to find in your new home.
Here at Usaj Realty, we have detailed information on Denver house prices and market conditions for every neighborhood, including average selling prices that can help you narrow down your search area.
When you're ready to do a neighborhood search, you can break it down by location or price. Our team of experienced and knowledgeable associates is always available to help you. We look forward to helping you find your new home!
(Editor's note: This blog was originally published in November of 2016. It has been updated and edited to include up-to-date information).
Posted by Usaj RealtyFacebook LinkedIn Twitter