How to buy a home in Colorado

Start with the monthly payment

Before you look at listings, decide what monthly payment you are comfortable with. Lenders will tell you the most you can borrow, and that number is often higher than what you want to spend.

Your payment has four parts: principal, interest, property taxes and homeowners insurance. Some homes add association dues, and loans with less than 20% down usually add mortgage insurance. Ask for the full payment, with all of these included.

Get pre-approved before you shop

A pre-approval means a lender has reviewed your income, credit and savings and told you what you can borrow. In a competitive market, sellers often will not consider an offer without one.

It also protects you. You tour homes you can actually buy, and you find out about any problem with your credit or income before you are under contract, when there is still time to fix it. The steps are in our guide on how to get a mortgage.

Choose the loan that fits

The loan decides your down payment and your monthly cost. The main options:

• FHA: as little as 3.5% down with a credit score of 580 or higher.
• Conventional: from 3% down for eligible first-time buyers, and no mortgage insurance with 20% down.
• VA: no down payment for eligible veterans and service members.
• Jumbo: for loan amounts above the conforming limit.

Colorado buyers who meet the income limits can also look at down payment assistance through the Colorado Housing and Finance Authority (CHFA). See first-time home buyer loans.

Find a home and make an offer

Work with a real estate agent who knows the area. When you find the home, your agent writes the offer on the state’s standard contract. It sets the price, the dates for inspection and appraisal, and the closing date.

You will put down earnest money, a deposit that shows you are serious. It is held by the title company and goes toward your purchase at closing. The contract’s deadlines decide when you can still get it back, so read them with your agent.

Inspection and appraisal

These are two different things. The inspection is for you: an inspector checks the roof, the foundation, the plumbing, the electrical system and the heating, and you decide whether to ask the seller for repairs or a credit. In Colorado, ask about radon and, on rural properties, the well and the septic system.

The appraisal is for the lender. An appraiser estimates what the home is worth. If it comes in below the price, you and the seller have to close the gap: a lower price, more cash from you, or some of each.

Underwriting

While that happens, the lender’s underwriter verifies your file. Expect requests for updated pay stubs, bank statements or a letter explaining a deposit. Answer quickly, because this step sets the pace of the whole purchase.

Until you close, do not open new credit, finance a car, change jobs or move large sums between accounts without talking to your loan officer first. Any of these can change your approval.

Closing day

A few days before closing you receive the Closing Disclosure, which lists your final loan terms and the exact cash you need to bring. Compare it with the estimate you were given at the start.

In Colorado, closings usually take place at a title company. You sign the loan documents, the funds are transferred and you get the keys. Many purchases close about 30 to 45 days after the offer is accepted, though the contract sets the date.

What it costs

Plan for three things: the down payment, closing costs and a cushion. Closing costs are often estimated at 2% to 5% of the loan amount and cover the appraisal, title insurance, lender fees and prepaid taxes and insurance. A seller credit or an assistance program can reduce what you bring.

To see the down payment at different levels, use the calculator on the first-time buyer page. For your real numbers, call Max.