How Much House Can You Afford?
This is a loaded question and often requires quite a bit of thought and analysis. It depends greatly on factors like your age, work, family, etc. and how long you plan on living in the house you are looking to buy and what your employment future looks like. Are you paying cash or are you borrowing money to make the purchase? Mortgage lenders recommend you keep your purchase price within 3 to 5 times your annual household income. It is a good idea to reference your accountant and financial advisor in this decision making process as well and if you need recommendations we have great relationships with local professionals who can help.
Find the Right Mortgage For You
Choosing the right mortgage can be quite the process and it starts with finding the right mortgage company and broker. We recommend you interview at least two to three mortgage brokers to find the right fit for your style and needs. We have time-tested relationships with the best mortgage brokers in town that have been working in the Routt county and Steamboat Springs real estate markets for decades and understand our unique lending environment. This loan will likely be big and paid back over a long period of time, so choosing the right mortgage is crucial and could save you thousands of dollars in the long run.
Depending on which type of loan you select, you may have the opportunity to choose between a fixed-rate or an adjustable-rate mortgage (also called an ARM). As you can probably guess, fixed rates are static and adjustable rates can move up or down according to the market interest rates. You will also need to choose the right mortgage term for you and your finances. Thirty-year mortgages are the most common, but 10, 15 or 20 year terms may also be available.
Check and Improve Your Credit Score
A mortgage requires a good credit score and interest rates vary based on credit scores. Request your credit report from all three bureaus (Equifax, Experian, and TransUnion). Fix any errors and work on improving your score at the recommendation of your mortgage broker and by:
- Paying down credit card balances
- Paying your bills on time
- Not applying for any new credit or loan until you have closed on your purchase
- Keeping all credit cards open until you have closed on your purchase
Compile Your Documentation
When looking for mortgages, you will need to show documentation such as your pay stubs, bank statements, and prior two years of tax returns. Start compiling these documents to save you and your lender time and be ready to provide more documentation than you ever thought possible.
Get Pre-Approved for your Mortgage
Your mortgage broker will help you determine exactly what you can afford and what price range you should be shopping in. This step is incredibly important for you and your Steamboat real estate agent to know what your budget is when looking for homes for sale in Steamboat Springs, Oak Creek, Hayden, Clark, or your desired area.
To be prepared to submit a competitive offer, you will need a pre-approval letter from your mortgage lender for the specific amount of the property you are offering on. Being pre-approved, unlike being pre-qualified, means you have actually been approved by a lender for a specific loan amount, and your financial information has been accepted and verified by the lender.
Down Payment, Earnest Money & Other Expenses
The down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The earnest money is good faith funds that is typically held by the title company and goes toward your down payment at closing. The lender provides the rest of the money to buy the property unless you are paying cash for the whole amount.
Down payments are typically 3% to 20% of the purchase price. Other costs including escrow for insurance, taxes and HOA dues as well as inspection, appraisal, and closing costs typically run about 2% to 5% of the purchase price but can vary greatly depending on the negotiated terms of your purchase agreement.