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Top Denver Real Estate Agent Reveals…
How To AVOID The 10 Biggest Denver First Time Home Buyer Mistakes!
Which of These 10 Common Home Buying Mistakes Will You Make?
Hello,
How would you feel if you got approved for a mortgage loan, picked a Denver real estate agent to take you out house shopping – and bought a Denver house 35 days from now. Then, a few days later, you learned you could have bought a similar home a few blocks away, for $10,500 less than what you just bought, that had a full finished basement – and the other home was located on a quiet cul-de-sac…
How would you feel now?
If you’re like most Denver home buyers, you’d feel like you got ripped off bad! Right?
Buying Denver homes for sale can seem a bit overwhelming for many first-time homebuyers. In my opinion, you've worked way too hard for your money to needlessly give it away as an uninformed consumer or acting like a dumb home buyer! Here's my helpful advice and Denver home buying guide for you - on buying a beautiful Denver area home and getting excellent financing. Read every word of this article below and you’ll realize that there are many ‘key’ items you need to do and know - if you want to avoid the most common MISTAKES outlined on this page. Protect yourself and your finances too, as informed consumers always make better buying decisions! You'll really be glad you took the time to understand both the loan and home buying process. Please refer back to our home page for more information on other Denver Metro cities.
First Time Denver Home Buying Tips!
1. You don't make money when you sell real estate...You make money when you BUY it.
 Do you see the statement above? Some novices think it was written backwards - that you only make money when you SELL real estate. "How on earth could you make money when you buy it" - they say?
Yet, that statement IS accurate; because you might receive your sales proceeds when you sell your home, but it's how well you BOUGHT your home to begin with that will determine HOW MUCH MORE your profits & proceeds will be! So then, which kind of home is the right one for you – a Denver new construction / builder home, a newer or older resale home, a townhome or condominium - or even a fixer-upper home / foreclosure home?
The answer is always – it depends on your specific financial situation! Denver new homes are nice and so are newer resale homes because there is usually far less expense to fix stuff and keep everything working properly. If you are very ‘tight’ on your disposable income – you might think twice before getting into an older home or fix-up / Denver foreclosure home…as you might go broke doing all the remodeling and corrections. Some of you are so busy with jobs, busy lifestyles and kids that townhomes and condos might be great options - because the Home Owners Association takes care of all the maintenance for you, freeing up more time for you to have fun.
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Then again, all these buying options all have negatives too – as new builder homes require you to add a lot of out-of-pocket expenses like window blinds, completing all the landscaping, waiting for the builder to correct defective items, muddy and dirty streets and not knowing who will move in next. You’ll also have to buy a home that’s quite a ways out of town and you might not like the longer commute to work. Resale homes may require unanticipated maintenance costs after a few years, and fixer uppers might be too much work for your actual sweat-equity return, based upon your time invested to do the work.
The same holds true with “trendy expensive” neighborhoods compared with more “moderately” or “lower” priced areas. Many Denver area first-time homeowners get “way in over their heads” thinking they have to live in more expensive areas, getting caught up in that “keeping up with the Jones mentality”. Buying Denver Colorado Real Estate takes some thinking too! Sometimes on your very first home, you might consider being more conservative and get something a little less flashy – and use your extra cash for paying off credit cards and other debts, or to buy new furniture instead?
Since over 80% of the homes sold in the US are resale homes – we normally recommend looking at homes that are 10 years old or newer – and to have them thoroughly inspected by a professional inspector. Then, we always recommend purchasing a Home Warranty Package – just in case some major problem occurs, as the last thing you’ll want is a financial “bomb” to your monthly family budget. Finding the right home, and making a prudent financial investment is more involved than just "buying right” – consider all your options carefully and...
2. Don’t be AFRAID to ask questions – or get clarification if you don’t genuinely understand.
It’s amazing that many first home buyers often feel so unknowledgeable that they ‘freeze-up’ and don’t ask important questions – or get clarification during the whole buying and financing process. This can really make the buying process a tense and frustrating process, as no one likes to be ‘dictated to’ - and typically everyone likes to understand what’s going on! Take a deep breath and vow that you will not be shy – or worse yet, let someone push you around and not keep you informed. It doesn’t matter if its mortgage loan related or real estate related, because either way, you need to stay informed. Keep notes of questions that develop and ALWAYS take a brief “time-out” to ask questions. Don’t rush into anything – and keep an eye out for problems as they might be occurring. Denver home buying is actually really fun – so keep it that way!
 3. Understand what you NEED and what you WANT in your first home?
Two things you need to consider here: Your NEEDS…and your WANTS. They are two very different things. You may need 3 bedrooms because of your children, or need a 2 car garage because of your 2 cars. What you'll find is your needs are fairly basic. It's the "wants" that take a little more time to clarify. Here is a list of needs you should consider BEFORE looking for your home:
1. The general price range of your home and what you can afford to pay every month?
2. Approximate size of home (in sq. footage) - make it a reasonable range.
3. General location, area, or subdivision you like.
4. Number of bedrooms required (don't forget to include any home offices or guest rooms).
5. Number of bathrooms you need - frequently determined by the number of children you have.
6. Style and layout of home: Do you like 2-storys, tri-levels, ranch or bi-levels?
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A great way to get a handle on what you want is to take a good look at your present home or apartment you're renting or compare it to your friend’s houses that you like. What do you like about them? Do you like its open floor plan? Do you like the kitchen and eating areas, and are the bedrooms big enough? List out everything you like about your present home, or homes you've visited. Now, let's take a look at what you don't like about your home. Do you hate the outside appearance or small yard? Do you hate the master bedroom layout? Are the bedrooms too small? Is the kitchen too cramped? If you dislike something with your present home, you're going to dislike it with your new home. So the better you can identify these items, the more likely you are to avoid them.
Understand what each spouse is looking for, and WHY? If you’re a husband and wife looking for a home, this exercise will eliminate many disagreements down the road. You’ll both understand what the other wants, and WHY they want it. I recommend you RANK each feature in terms of its importance to you and your spouse. You're both going to live in the home, so you better understand what the other is looking for. Also, allocate some time and money to do any future improvements if needed.
4. Check out the various loan programs that you qualify for and get Pre-Approved FIRST!!!
How are you going to “know” what you qualify to buy and what your loan payments are going to be? If you don’t get pre-approved first, then how can you decide what and where you’ll buy? You REALLY need to start your home buying process the right way – and that’s by getting Pre-Approved and comparing the different financial options which are available to you, like: 15 and 30 year fixed rates, adjustable rate loans, $0 Down loans, FHA, VA, and other Conventional loans. Mortgage Specialists LLC offers you a wide variety of loans for Denver first-time borrowers of every type and credit rating, including special loan products to help first-time buyers with limited cash for a down payment, mortgages which minimize monthly payments (2/1 buy downs!) and even loans for those with credit problems.
5. Do You understand how much home you can afford?
Like it or not, there are 2 guidelines bankers and mortgage lenders use to determine how expensive a house you can afford… There is NO sense in driving around looking at homes you might NOT be able to afford anyway! The first guideline is your credit & your three FICO credit scores. Most Conventional loans require a mid-FICO score of 680, and FHA about a 620 score. You cannot have ANY (zero) 30 day late payments on any debt of yours in the past 1 year.
These loans variations have very strict guidelines - but in exchange for that, you're able to get the 'best' interest rates and lending programs. You must have a 3% down for FHA loans - which can be borrowed or a gift. Conventional loans usually require 3-5% down - although they do have $0 down options - which are far less strict! Most renters who start looking for houses, who have less than perfect credit - usually end up at a new home builder or other lender, only to find out their credit is NOT good enough to get a loan. After getting declined once or twice - they "give-up" and forget about buying for 1-2 years because that's how long most lenders require them to wait for credit to be 'fixed' or repaired. How unfortunate! Especially if you really want to buy now, as unfortunately, most renters aren’t aware that they might be able to get $0 down financing to help them buy a home right away – even with old unpaid charge-off’s and collections. You just need a 620+ mid-fico score on all borrowers.
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The second guideline is called the Back-End Debt Ratio. Debt refers to ALL the monthly payments you currently have on your credit cards, car loans, student loans, etc. Then, lenders will compare your total debt to your total gross monthly income. For example, if you owe $2000 a month on all your debts and your combined monthly income is $5000, then your back-end debt ratio is 40% ($5000 divided by $2000 = 40%)
Now, here's the 'problem'…each mortgage company sets different limits on your Debt-to-Income ratio. Some lend at 38%, while others will go as high as 65%. Confusing – huh? Now can you understand why some people "qualify" for larger homes - and others don't? Most of the zero down loans we do have a back-end debt ratio of 50-55% - enabling most borrowers to qualify! Now if your back-end debt ratio exceeds 50%, you’ll have to either pay down your current debts, make more money or buy a less expensive house. Whether you have perfect credit and lots of cash saved for your down payment money - or very little to no cash and not so perfect credit – we can still probably help you! Think about this…
6. Save a bundle of money when financing!
Your ability to afford a home will be related to a number of items. They are…
1. The PRICE of the home and how much you can afford to pay per month.
2. Your DOWN PAYMENT on your home, and thus the amount financed.
3. What your mid-FICO scores are & what your credit history looks like.
4. The INTEREST RATE and any POINTS of your loan
4. The TERM of your loan: 15 years, 25 years, and 30 years.
5. Your back-end DEBT RATIO - combining your income & debts.
6. The overall TYPE of your loan: the most common are fixed vs. adjustable (arm) rates. There are hundreds of loan packages to choose from - much more than most borrowers have ever heard of...
The "plain vanilla" 30 yr fixed rate loans are often the "best" loans for MOST first-time home buyers if you have 3-5% down payment. However, many people often put way too much money down when they buy their first home, as there are some excellent $0 Down loans still available. The answer for how much you should put down on your home is different for everyone! However, we have learned over time that…most borrowers wait too long to save up money for down payments - needlessly wasting money on rent! Why wait 6 months to a year or more to clear up your credit and save for a down payment when you could choose a $0 money down loan right now?
Instead of putting 3% or 5% down on a home - why not do zero down now? Almost all new home buyers 'rack-up' $4,000-$10,000 or more in credit card debt buying furniture, decorations, remodeling and updating on the house they buy anyway! Why not be smarter and do a $0 Down loan now and pay cash for all that other stuff? Your 8% to 17.9% Visa and MasterCard rates will 'kill you' financing all that stuff over the next few years. If you do a $0 Down loan now, at least you get to write-off 28-33% of your mortgage interest as a tax deduction …Visa’s don’t have a write-off!
Zero down loans are fast becoming the most "savvy" way to purchase a home now.
The moral of the story is: Putting more money into your home will make a strict banker happy, as it lowers the risk of you defaulting on their loan. It may make your overall payment a little bit lower too…but it will almost always be a far wiser decision to put LESS money into your home as a down payment - especially if you can leverage your home purchase and use it to payoff credit cards or invest the savings into another investment that pays a far higher rate of return for your retirement or kids college fund.
7. The great interest rate "Scam" - the “Big Myth Revealed”…
Now, let's shift gears a little and talk about the impact "Interest Rates" have on your overall financial picture… Some mortgage lenders toss around the lowest interest rate numbers as if "civilization would come to an end" if you don't get the world’s lowest rate!!! We disagree strongly...as interest rates are at record low rates now – it’s a great time to buy a home! The real truth is that rates are important, but what about these two common situations:
1) What if you are renting and have to keep renting for 1 more year before you can save up for the down payment? (You hurt yourself financially…) Here's why...
Let's say you are paying $1,000 a month in rent. So waiting a year to fix credit or save for a down payment costs you $12,000 in wasted rent. Yikes!!! Waiting 1 year was NOT very smart!!! Right?
Let's say 1 year from now, rates went up to 6.75% on a 30 year FHA fixed rate loan - but right now, you could get a 6% interest rate on a $0 Down loan...and you could buy it with $0 Down and $0 closing costs! Your principle & interest on the 6% loan + mortgage insurance would be $1310 per month. The FHA loan 1 year from now would be $1410 per month. The $0 down loan is $100 lower per month now, and you save $12,000 in wasted rent! Did you realize that? So in reality, take the $12,000 you "lost" by waiting to buy and another $1200 per month in higher payments of you wait.
2) Did you forget about your tax benefits and the fact that most home buyers move in just 4-6 years after buying their house? So, how does that affect interest rates you ask? Well, let’s say in this example that you could buy a $200,000 house this weekend – and you could get a 6% interest rate (even if you had to pay points to get it…it doesn’t matter in this example.) The 6% rate is a monthly principle & interest payment of $1,200, so over 5 years – you’d pay $1,200 x 60 months = $72,000. Right? WRONG! You get to write-off the mortgage interest and mortgage insurance. If you and your spouse were in a 33% tax bracket ($80,000 and higher annual income) your $1,200 monthly payment would actually be adjusted to $845 a month – as you’d INCREASE your W4’s at work and give yourself a $355 a month pay raise to buy a home instead of renting!
Take $345 x 5 years = $21,300 in savings by buying instead of renting. Even experienced homebuyers fall prey to the "lowest 30 year fixed rate scam" bombarded upon you by the 'slick advertising' you see and hear on the TV, radio and read in the newspaper…
8. Do you really understand why renting is SO BAD?
The answer is that mortgage loan interest and your property taxes are fully tax deductible when you are a home owner. Now – the tax implications are actually really cool to understand too – as most first-time buyers are in 28% or 33% tax brackets. This simply means that you can write-off 28% or 33% of your mortgage interest every year.
So think about this…what if you had average credit scores now – but we could still get you into a $0 Down loan at 6%? Getting a 6% interest rate is really getting a 4.02% rate if you’re in a 33% tax bracket. If your Visa or MasterCard has a $3,000 balance at 17.9% - is buying a home smart? Once again, you can see why interest rates are NOT nearly as important as most people “think” they are!
Mortgage insurance is required on every loan that has less than 20% equity. It's profit for the lender for the risk that you could default on the loan.
9. Is paying discount points good or bad?
First of all, if a lender tells you they automatically charge you “points” - just run away. Don't call them back...just run and keep running! Paying points is a stupid waste of your money…UNLESS…unless you are planning on living in the home for 5 or more years – and in that case, we almost ALWAYS recommend paying discount points to lower your rate!!! Confusing – aren’t we?
Not too many first-time borrowers can honestly tell us that they are planning on living in their homes for much more than 3-5 years - as almost everyone expects to make more money at their jobs over the next 3-5 years, and trust me – you’ll want to move-up into a much bigger and better home and nicer neighborhood…ADMIT IT…you will. (Most of you would buy a bigger house right now - if you made an extra $2,000 to $4,000 a month.) One discount point is equal to 1% of your total loan, so one point on a $200,000 loan would cost you $2,000. Lenders lend money at higher and lower rates - depending on what you need – so you can have the option to pay 'points' to buy the rate down & get a lower interest rate and this gets you a "lower" monthly payment.
10. What are your lifestyle requirements and what are your future expenses – big or small?
Sometimes the “best” way to look at mortgage financing on your first home – is to project yourself out in the future about 3-4 years. Do you have an active lifestyle now? Do you like to spend your disposable income and enjoy dinners out, traveling and hobbies? Are you planning on kids – or getting married if you’re single? Do you have high monthly credit card and other debt payments now – and do you want to pay those off faster? Are you going to want a new car soon, or a boat or other “play toys”?
The best financial situation for most of these options is usually getting the lowest monthly mortgage payment for most of you. Why – well you could use the lower house payment to pay off your highest interest rate debts first; like your credit cards and car payment. Statistically, younger people aged 24 to 36 years old incur the most debt as a percentage of their annual incomes – so why not at least enjoy yourself with a lower mortgage payment?
What If You Could Double $500 of Your Cash Deposit – Turning $500 Into a $1,000 Earnest Money Deposit on Your Dream Home? Tell me about what price range of homes you're interested in and what part of town you want to buy in - and I'll send you a free gift of $500 cash to use as earnest money when you use me as your Buyers Agent. Buying and selling Littleton and Denver real estate is much more profitable when you hire me and when you send me the email form here...
Call me or email me right now - and put us to work for you!
Jeff Boyce
(303) 588-4665
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