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Home Talk Blog

How Much House Can I Afford in the Hot Denver Market?

by US Mortgages / September 18, 2018

If you’re wondering "How much house can I afford in Denver?", you’re not alone! 

The Denver market has been hot for years now, with no sign of cooling. Today’s buyers have the opportunity to jump on the Denver real estate train while property values are still climbing. 

Of course before you jump, you need to know exactly how much house you can afford in this hot Denver market.

So to help you answer that burning question, we have a list of the costs (both upfront and ongoing) that you’ll need to factor into your buying decision. 

Upfront Costs

The first thing to consider when asking yourself how much house can I afford? is the upfront costs associated with buying a home. It’s crucial to make sure you have enough in savings to cover the upfront investment. 

Down Payment

The down payment is typically the buyer’s largest upfront expense. The standard down payment with a conventional loan is 20% of the purchase price. But you may be able to get an FHA loan with as little as 3.5% down. Veterans may even be able to get a VA loan with 0% down!

There are even down payment assistance and grant programs like the Home.Made Simple. ™ program for qualified home buyers that can cover most of, if not all of your down payment

Consider all your loan options from a Denver mortgage company like US Mortgages to find the loan with the down payment structure that will work best for you.

Closing Costs    

Closing costs include line items like loan origination fees, the property appraisal, a property survey, the pest inspection, and courier services. Closing costs in Colorado typically equal somewhere between 3% and 5% of the purchase price. 

Urgent Repairs and Renovations

You’ll also want to make sure you have money available for any time-sensitive repairs and renovations to the property. The good news is that this cost could be $0 if you find a home with no urgent needs. 

Moving 

And don’t forget about moving costs. It may not be a huge expense, but buyers generally underestimate moving costs, and sometimes forget to budget for them completely.

Ongoing Costs

After that initial investment, you’ll need to have sufficient cash flow to cover the monthly expenses of home ownership.

Principal and Interest

The payments made to your lender to pay down your mortgage loan consist of the principal balance of the loan plus the interest. There are several factors that go into this principal-and-interest amount, including the full amount of the loan, the loan term, and the interest rate.

You can make your monthly payments more affordable by choosing a longer loan term. And you can greatly lower your interest rates, which will lower your payments, simply by having great credit. 

Property Taxes

Property taxes are based on the value of each individual property. The county determines the full market value of your property, then applies an assessment percentage (7.20% for 2018) to determine the assessed value. Then a mill levy (77.134 mills for 2018) is applied to the assessed value to determine your property tax amount.

Colorado homeowners enjoy low property taxes compared to the rest of the country. The average homeowner in Denver County pays about $1,530/year ($127.50/month) in property taxes.

Denver mortgage companies often add your property taxes into your monthly mortgage payment. This allows you to pay your monthly property tax amount to your lender with your mortgage payment, then they can pay the property taxes on your behalf prior to the due date.   

Homeowner’s Insurance

Homeowner’s insurance is always a smart investment, and it’s required by your lender while there is a mortgage on the property.

Colorado homeowners pay an average of $1,383/year ($115.25/month) on homeowner’s insurance premiums.

As with the property taxes,  mortgage companies often add the homeowner’s insurance premiums into your monthly mortgage payments so they can make the payments on your behalf.

Homeowner’s Association (HOA) Dues

If your new home is in an HOA, you will need to pay dues. The dues vary greatly by development, depending on the amenities offered by the HOA, but a couple hundred dollars per month is common. 

When you start house hunting, pay close attention to any HOA fees so you can factor them in when answering how much house can I afford?

Private Mortgage Insurance (PMI)

PMI only applies if your down payment is less than 20%. PMI is a special insurance policy to offer added protection for your lender in exchange for them taking the risk in lending you such a large percentage of the property value.  

The rates vary between about .2% and 2% depending on the amount of the down payment, loan term, and borrower’s credit score. 

Maintenance

Don’t forget to budget for routine home care:

Lawn care

  • Servicing heating and cooling systems
  • Replacing appliances as needed
  • Pest control
  • Saving for larger expenses like replacing the roof, repainting the exterior, or repaving the driveway

A general rule of thumb is to set aside 5% of your monthly mortgage payment so you have money available to address home maintenance issues as they arise. 

So How Much House Can I Afford?

The bottom line is that you don’t want to overextend yourself when buying a house. To truly enjoy your new home, you want to be able to comfortably afford it.

To see how much you can comfortably afford, multiply your gross monthly income (that’s pre-tax monthly income) by .31. The result is the maximum monthly amount you should spend on your total ongoing housing costs.

This way, your total housing costs will be less than 31% of your gross income, making your new home comfortably affordable.

If you’ve added up all your costs and you feel ready to buy your first home, or if you still aren’t sure how to make it happen, talk to US first.

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Tags: Home Buying

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