Buying A Home In Colorado? Top 5 Myths Busted

Before buying a home in Colorado, you will naturally be asking around and taking advice from friends and family on how to go about it. For most people, it is a major investment decision and the importance of getting sound and reliable advice cannot be denied.

However, there are several common myths floating around about homebuying in Colorado and these need to be busted so that you get the real picture. While you will get a lot of suggestions from the Internet, these are generic and might not apply to you.

For accurate advice that meets your needs, get in touch with us at Just Livin Realty before investing in a home. Our experts will offer you customized solutions and you will realize that what you have heard for so long is not always right.

In this post, we will demystify 5 typical house-buying myths that have probably forced you to postpone going through your dream project before.

Myth 1

You need a substantial 20% down payment

This myth alone is enough to put off homebuyers from their dream of owning a home. The down payment on a median house for $500,000 works out to a massive $100,000, a scary thought. Fortunately, it is a myth and you can buy a house for far less, often as low as 3-5%.

You can even qualify for down payment assistance (DPA) programs that help with a part or full amount of the required down payment and closing costs. These programs are available throughout the nation with State, county, or local city governments running several of them.

To qualify for DPA, you should typically be a first-time home buyer with low to moderate income, buying a primary residence, and availing of an approved mortgage program. However, low down payment means more risk to the lender, and hence expect higher interest rates and additional mortgage insurance that will be a part of your monthly mortgage payments. 

Myth 2

Lower Investment for fixer-uppers

Generally, the perception is that it is more budget-friendly to purchase an old home and renovate it as per the requirement. But this is not always true. It costs a lot of money, especially if you want to add a pool, remodel the kitchen, make renovations, and more. These are big-ticket expenses and you must check whether, in reality, the total cost of buying a fixer-upper and remodeling it is less than the cost of buying a new home.

Further, the cost of remodeling does not proportionately increase the price of your home. If you have spent $100,000 on add-ons or extensions, the curb value of your home does not go up by that amount. Talk to contractors and get estimates before buying a fixer-upper.

Myth 3

A down payment is the only upfront cost

While the down payment for buying a home in Colorado will be your main savings goal, there are other upfront costs too that will be substantial amounts.

For example, the closing costs that include homeowners’ insurance, title fees, and others will set you back by 2-4% of the price of the house. This works out to $10,000 to $20,000 on the cost of a $500,000 purchase price.

Lenders insist on an appraisal of the property you want to buy to know its market value so that the quantum of the loan may be worked out. Even though the appraisal cost depends on the location of the property, it ranges between $300 to $600 payable at the time of appraisal or with closing costs.

The inspection fee is another upfront fee to be paid. It is in the range of $300 to $400. Many aspiring homeowners do not have this inspection carried out but it might cost you dearly in the long run. After moving in, you might find the need for repairs that can set you back heavily. Knowing the state of the house in advance will also help you bargain about the price with the seller from a stronger footing.

Make provision for these expenses when you buy a house in Colorado.

Myth 4

A high credit score will only get you a mortgage loan

It is not essential to have a high credit score before you are sanctioned a mortgage loan. There are several mortgage loans available for people with low credit scores.

Traditionally, you need a credit score of 620 to qualify for a mortgage loan with all types of loans open to you with a score of 680 and above. However, some lenders issue loans that are backed by the government. FHA and VA loans can be had with a score of 580 while some lenders even offer mortgage FHA loans with a credit score as low as 500 though this is not very common.

Just like loans with a low down payment, these low credit score loans have stiff conditions attached to them. Be prepared to pay a high down payment and interest rate. These are to cover the additional risks taken by lenders in issuing loans to low credit score borrowers.

Myth 5

Your home-buying budget is the mortgage loan sanctioned

This is one more myth that needs to be busted. Should the quantum of loan sanctioned determine your home-buying budget or your ability to pay the regular monthly installments? Let us understand the difference between the two.

A home loan is issued based on your assets, debt, income, financial history, and credit score. Based on these parameters, lenders calculate the debt-to-income ratio (DTI) by adding up all your debts and dividing the amount by your total income. This ratio shows your ability to pay your other debts along with your mortgage payments. A 45% DTI is acceptable while 36% is very good. Here, you might qualify for a loan higher than you thought but like the myth, do not make this your benchmark to set the budget for your home purchase.

Now, figure out how much loan you can afford, starting with the monthly payment of taxes, principal, and insurance. There will be some payments linked to ownership that are not a part of the monthly payments such as maintenance and HOA dues. Remember, you should live a financially worry-free life in your new house, possible only if you cut your coat according to the cloth.

Summing Up

While buying a house in Colorado, ensure that you do not fall into any of these myth traps. Regardless of whether you are a first-time home buyer or a repeat one, have experienced real estate professionals to handhold you through the process. At Just Livin Realty, we make sure that you do not miss a step and that your dream house is yours without any hassles.

Call us today to schedule a consultation.