Buying A Home In Colorado

Whether you are looking to purchase a fixer-upper or your dream home, you’ll need to determine your home buying power. There are five variables that will determine your power to purchase the right home.

Where do you want to live? Every housing market varies, similar homes have different values and property taxes vary from state to state, sometimes city to city. Additionally, local rules and regulations as well as lenders will play a role in determining your home buying power within your market. Property type also determines eligibility as some home buying programs may only apply to certain types of property. Once you have determined where you want to live, also determine what type of home you are looking for – a small ranch home, condo, luxury home, etc. Then speak with a lender to make sure that you are looking in the right price range.

What is your annual income? After you have decided the location and type of property you are looking for, determine what you can afford. A lender will look at two years of income. Everything that contributes to your annual income strengthens your home buying power:

  • Salary

  • Commission

  • Investments

  • Miscellaneous income such as royalties, contract work, etc. 

 What is your monthly debt? What is the debt, not expenses, that you pay? Remember, groceries are not a debt but an expense. Examples of debt are:

  • Credit cards

  • Auto loans

  • Student loans

  • Any other loan, miscellaneous debt

Your income and monthly debt determine your debt-to=income ratio or DTI. This is figured by dividing your total monthly debt by our gross monthly income. As a rule of thumb, the lower the better.

Another rule of thumb is to not incur any new debts before looking for a new home. If you need a new car and a new house, get the house first. The new car loan will impact your home buying power if choose to purchase a new car before the new home.

What is your credit score? Your credit history plays a huge role in home buying power. Lenders look at your monthly debt AND your credit score to determine risk level. Home buyers with a better credit score will typically qualify for better loans and fixed rates. Your credit score is determined by:

  • Credit mix

  • New credit

  • Amount owed

  • Payment history

  • Length of credit history

The quicker that you pull your credit score, the quicker you determine your buying power. Many hesitate in taking this step because they are afraid that pulling a credit report will ding their score. If any at all, the points will be minimal and will not impact your buying power.

How much can you place on a down payment? You may have heard that the standard down payment is 20% of the home’s value. This is not a universal figure. There are many programs available for home buyers who are looking to lower the down payment percentage so don’t let the 20% scare you. However, know that a larger down payment will afford you a better home and possibly a better fixed mortgage rate works stronger in your favor for the long run. Your lender will help you determine how much of a down payment should be considered when taking into account your DTI and credit score.  

All in all, it is never too early to sit with a lender, determine your home buying power and bring you closer to purchasing the home of your dreams. True Realty can assist you with finding that lender, just give us a call @ 720-305-0757.