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First-time Homebuyer Information
Renting offers the advantage of flexibility, being able to move on short notice (depending on your lease agreement) while a mortgage does not. A foreclosure on a mortgage loan is a far worse problem than being evicted from an apartment as well. There are additional costs when you own your own home, such as maintenance and repair costs. Consider your lifestyle, potential changes in your employment and the financial responsibilities of owning a home before making this important decision. To learn more about whether you should continue renting or buy a home, use this calculator: (Colorado home price appreciation continues to lag the nation—5.6 percent versus 12 percent nationally in third quarter 2005, placing the state 45th nationwide.) It’s Time to Buy a Home Therefore, we recommend taking the following steps before you ever start shopping for your first home:
The following websites have step-by-step tools to help you: Credit Union Consumer Facts: Homebuying Getting Credit-Ready As the system operates today, credit scores run from 300-850 (under the new system, scores will range from 501-990). Lenders base the percentage rate they will offer you for your mortgage on your credit score. The higher your score, the better mortgage rate you can obtain. You can obtain copies of your credit report to find out your credit score. If your credit score is over 720 you don’t need to work on it to get the best rates. The difference in the interest rates offered to a person with a score of 520 and a person with a 720 score is 3.45 percentage points, according to Fair Isaac's Web site. On a $100,000, 30-year mortgage, that difference would cost more than $85,000 extra in interest charges, according to Bankrate.com's mortgage calculator. The difference in the monthly payment alone would be about $235. This could impact the type, size and price of a home you can afford to buy in addition to the high cost of having poor credit. Therefore, it is well worth your time and money to improve your credit rating. Some ways you can improve your credit score include:
If you are willing to pay for a comprehensive evaluation of your credit report and how to improve it, visit www.myfico.com (an excellent product for this purpose). You will receive a detailed report showing the negatives on your own credit report and how you can increase your score. If you have more time to improve your credit score, these are some tips to doing that: If you need to develop a plan to pay down your debt in a certain period of time, this free tool from BankRate will help you to find the best way to do that: You can obtain copies of your credit reports for free if you live in Colorado:
Once you have learned where your money is going, you can develop a plan that will enable you to cut some unnecessary spending and save that money for your down payment. For creative ideas on how to find the money to save, use these links: Finding money to save There are also special programs in your community that offer down payment assistance for first-time homebuyers: Credit Union First Time Homebuyer Program Housing Counseling Agencies For people with disabilities who want to buy a home: How much home can you afford? For more information on the 28/36 Guide Worksheets and calculators for figuring out how much home you can afford: Pre-qualifying or getting pre-approval for a mortgage When you are shopping for a home, one advantage you can have over others interested in the same home is a pre-approved loan. Having pre-approval means the seller doesn’t have to wait for you to get qualified, as opposed to other buyers who still need to go through the process. This could even give you room to negotiate the price of the home. To get pre-approval, you will first need to find a lender. If you are a first-time homebuyer, a good option is to use one of the first-time homebuyer programs mentioned above to get direction and access to programs. If you don’t use a homebuyer program, then you will need to shop for the best rates and lenders. We urge you to use caution as you move through this process and work only with reputable lenders. If you belong to a credit union, talk to them first. If you don’t belong to one, you can become a member by joining Consumers United Association. (Visit the Join Us http://www.cuacolorado.org/join.asp section of our website for information). These links will provide you with more information about how to make a decision on a lender: Avoid Predatory Mortgage Loans Tips for Avoiding Predatory Loans |
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Oftentimes the decision to consider buying a home is followed by finding a realtor and going shopping for a home. When you do this, you are taking a risk of purchasing much more home than you can afford. There is also the potential for complete discouragement if you find a home that you really want and cannot afford it. When this happens, it is difficult to “settle” for something smaller. 
Lenders often require a down payment ranging from 0-20%. Saving for a down payment can sometimes be a daunting task. The best way to do this is to first learn where all of your money is going. Track all of your spending for several weeks. Don’t forget the small purchases like designer coffee, vending machine purchases and lunch out. Examine other things in your budget such as cable T.V., a storage unit, cell phone, etc. and ask yourself if they are as important to you as buying your own home.