Purchasing a home in Colorado’s competitive market takes strategy. Many of you think that the only way to purchase in this market is that you have more money to put down and great credit. This is not necessarily the case. Let’s go over some facts and how to put yourself into a better position in purchasing a home in this market.
3 Common Misconceptions:
- You need 20% down to purchase a home
- Your credit must be excellent (700-800 FICO)
- You will need to have 2 years at your current job
Now let’s break these misconceptions down:
- There are programs available where you can put as little at 3% down*. You can do a conventional loan with 3% down and a minimum credit score of 620. If you credit score is less than <620 but at least 580 than you can do an FHA loan with 3.5%* down. Which brings us to misconception #2.
- The minimum credit to be specific FICO scores you need to purchase is a 580. Please keep in mind that when your score is on the lower end (580-600) the only option is FHA. This is not a bad option regardless of what you may hear. An FHA loan is designed to help those of us who don’t have a large down payment and have less then perfect credit. This is so all of us have an equal opportunity of obtaining the dream of homeownership.
- You do need to have a 2-year work history, but it does NOT need to be at the same employer. The reason for a two-year work history is that the lender wants to see that you have a stable job history. It is acceptable to have a history with let’s say one year at an employer and then immediately following another job with a new employer for another year. What can raise some red flags is if there is more than a 3-month gap in between employers. This doesn’t mean you won’t qualify it just means there needs to be a justifiable reason and possibly needed documentation to prove. If you are self-employed the rule is at least two years of taxes will be needed. There are some exceptions and is best to advise with a lender.
Now that we have a few facts down, how do you purchase a home in Colorado’s competitive market when you don’t have excess funds to put into the purchase?
One of the best things to start with is that regardless of the loan program, the amount of funds you can put down and your credit score, is to get credit approved. We have written about this before which I highly recommend you take a look. It takes your pre-approval to the next step. Your file is sent to the underwriter to be reviewed and then approved. The underwriter “credit” approves you. Which means that you as good as a cash buyer. You know have no hurdles that can prevent you from buying a home. At this point the only thing that can prevent you from buying the home is if the property doesn’t qualify. To complete your mortgage you will have to have an appraisal and title.
The next best strategy is working with an experienced and qualified Real Estate agent. In this market your Realtor needs to be able to come to the table representing you in the best light. And that means regardless of your loan program (FHA, VA, Conventional, CHFA). They need to be well versed and equipped in knowing how to present your offer. This goes hand in hand with your lender. Your lender should be calling the listing agent once you have put in your offer. They will be letting the agent know you are already credit approved so your offer is strong. And if you’re not credit approved then stating they are confident in your pre-approval. That they have reviewed your financials and credit.
The last thing is to not get discouraged. Stay strong and confident in the team (Realtor & Lender) you have chosen. Keep saving money while you are looking for homes and don’t take out any new credit. Make sure to look at all your loan options available to you. If this is not your “forever” home be sure to explore an ARM*.
One more thing, make a strategic plan with your lender. Explore options that can help in maybe using less funds for down payment and leveraging your funds for more earnest money (which goes towards closing costs) and/or saving funds for the possibility of appraisal gap. Take the time to discuss and explore all areas and ask all the questions you may have.
If you would like to see what your options are and would like to see if you qualify, please give us a call.