Everything You Need to Know About Buying a House in Colorado

Whether you’re a first-time buyer or a property investor, Colorado is a great place to buy a house. This guide will help you make a strategic purchase.
Written by Bonnie Stinson
Reviewed by Melanie Reiff
Updated on May 03, 2022
is a seriously attractive market for homebuyers. This state has outdoor activities in every season, purple mountains reign here, and the economy is booming. If you can afford the cost of living here, then Colorado is a wonderful place to buy a house.
Buying a house is a big deal—but you can prepare yourself for the process with a bit of research ahead of time. Don’t be intimidated! You’re about to find a wonderful house to make your home.
This homebuyer’s guide covers everything you need to know about this process, from understanding your financial situation to buying in the right neighborhood.
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Figure out your finances

Step one is to assess your finances. There’s a lot of work to be done before you can contact real estate agents and visit properties. Luckily, all it takes is a bit of time and organization to gather all your financial information. 
You will have much better luck house-hunting if you start by figuring out your credit score, your DTI (debt-to-income) ratio, and extra fees and payments. So grab your bank statements, financial records, and a calculator—you’re about to get one step closer to figuring out what kind of house you can afford in Colorado.

Check your credit score

The fundamental rating of your worthiness as a prospective homebuyer is your credit score. It reflects your risk level and financial history. Check your credit score before you take any further steps.
As a general rule, your credit score must be 620 or higher if you want to buy a house in Colorado with a conventional mortgage.
If your credit score is lower than 620, don’t fret. You still have options.
  • Grow your credit over six months to a year. This can help you qualify for a better mortgage while giving you extra time to save for a bigger down payment. If this is not an option, you can try to qualify with a lower credit score.
  • Apply for an FHA or VA loan. The Federal Housing Administration and the Veterans Administration help qualified homebuyers get loans, even if their credit scores are low. The floor for FHA loans is 523 and the floor for VA loans is 500.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio, or DTI, is another critical component of your financial situation. Lenders will consider your DTI before offering you a loan. But your DTI is not a secret.
Calculate your DTI by tallying up your monthly payments:
  • Rent or house payments
  • Student loan payments
  • Car payments
  • Credit card payments
  • Child support or alimony
Then, divide this sum by your pre-tax income.
If your DTI is greater than 50%, this means you have more debt than income. You may struggle to buy a house in Colorado. You should aim for a DTI below 36% to obtain a conventional mortgage.

Determine your down payment 

The size of your down payment will affect what kind of mortgage you can get. A conventional mortgage typically requires at least 20% of the purchasing price as a down payment. 
If you cannot make a 20% down payment, eligible homebuyers can consider two other options:
  • FHA loan: A mortgage insured by the Federal Housing Administration is intended to help low- and middle-income buyers, with a special focus on first-time buyers. The FHA’s required down payment is 3.5%.
  • VA home loan: A mortgage insured by the Veterans Administration is intended to help service members, veterans, and eligible surviving spouses with buying a home. The minimum down payment is as low as 0%.
Not only are FHA and VA loans open to people with smaller down payments but their interest rates are often lower, too. 

Prepare for closing costs and other fees

The overall cost of buying a home is more than just the down payment. If you’re buying a house in Colorado—or anywhere—you should factor in closing costs, too.
Closing costs typically amount to 3-6% of the home’s total value. According to
Zillow’s Home Value Index,
the average home value in Colorado is $536,839. This means that your closing costs could come out to as much as $32,210
That’s a lot of money! So what’s actually included in this cost? Generally, your closing costs go toward covering the following: 
  • Home appraisal (required by most lenders) fee
  • Credit report fee
  • Home inspection fee
  • Mortgage origination fee
  • Earnest money (i.e., a good-faith deposit that will go towards your down payment)
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Generally speaking, Colorado has some of the lowest property taxes in the country. Property taxes vary by county, so your total closing costs depend in part on where you are buying a house in Colorado. In Gilpin County, it’s 0.23%. In Broomfield County, it’s 0.67%.
Ready for even better news? Colorado has a Down Payment Assistance Program for qualified first-time buyers which can help reduce the overall cost of buying a house in Colorado.
Key Takeaway Before you start viewing properties, research the property tax rate in the county where you hope to live.

Look for homeowners insurance

There’s one final cost you need to consider: homeowners insurance. This is an ongoing monthly expense that you must pay on top of your mortgage payment.
The average cost of homeowners insurance in the US is $1,387 per year or $115 per month. In Colorado, you might pay higher than that figure if you need additional wildfire protection on top of your standard homeowners policy.
Before you buy a policy, shop around with at least three different companies. Compare rates to find the cheapest homeowners policy. The best place to start is your
car insurance
company, since they’ll usually give you a discount for bundling policies.
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Key Takeaway Buying a house in Colorado requires you to know your financial situation. Start the process by determining your credit score, DTI, expected closing costs, and down payment amount. 

Get preapproved for a mortgage

Close the Zillow tabs, it’s time for the next step on your home-buying journey: prequalifying for a mortgage.
Prequalification lets you know how much of a mortgage you can actually afford so you can limit yourself to viewing properties within your budget.
It also helps you get an edge on other buyers since the sellers know you are actually capable of making a legitimate offer. You may not even be able to book a viewing with a seller if you can’t provide a preapproval letter.
Here’s how to get preapproved for a mortgage: 
  • Provide the lender with your Social Security number 
  • Gather all your banking information, employment history, assets, and debts
  • Fill out a mortgage application
The preapproval process is fairly straightforward and can take as little as a few days. 
But do not start the preapproval process until you’re ready to buy. Lenders will verify your financial information by performing a hard credit check. If you apply before your finances are in order, this credit check could damage your credit and make it harder to get approved the next time. 

How to pick the right mortgage in Colorado

A mortgage has two basic parts: a mortgage term and an interest rate. The most common mortgage terms are 30 years and 15 years, though you can find terms in between and outside of those ranges. 
A longer-term usually means lower monthly payments but a higher interest rate (average is 3.5%). A shorter-term means higher monthly payments (so you can pay off the balance in a shorter period of time). In exchange, you’ll usually have a lower interest rate (2.5% or lower).
It’s wise to compare options from several lenders before you commit. A few percentage points may not seem like much now but it could mean thousands of dollars over the lifetime of your mortgage.

Look for a house

Okay, it’s time to open up those Zillow tabs again! With your financial situation clear and your prequalification in hand, you’re ready to find the perfect house.

Pick your city or neighborhood 

The three key components of a great match are culture, climate, and cost of living. Colorado has excellent medical care and year-round activities—but the cost of living is higher than average.
Start your search by figuring out what’s important to you. Do you need a good school district or are you more interested in nightlife? Remember to research local crime rates and consider transportation costs like
car insurance
If you don’t mind paying extra fees for extra benefits, you may be interested in buying in a deed-restricted community with HOA fees. However, these communities often come with restrictions and regulations for the residents who live there.
Currently booming are Boulder, Vail, Aspen, and Durango. The most affordable areas are Craig, La Junta, and Sterling. 

Buyer’s market vs. seller’s market

Be a smart buyer. Know whether you’re in a buyer’s market or a seller’s market.
A buyer’s market means that the buyer is in a powerful position. The supply of houses outweighs demand, so you may be able to negotiate the price down. A seller’s market means that the seller has more power. There are more buyers than houses, so you may not be able to make many demands.
A simple way to find out which market you’re in is to compare the asking price to the final price of recent home sales in your target area. If prices are higher, it’s a seller’s market. Time on the market is a good indicator, too. Houses are bought and sold quickly in a seller’s market.
As of the first quarter of 2022, most cities in Colorado are seller’s markets. This means that once you find a house you’re interested in, it’s best to put in an offer promptly to avoid missing out on the sale. However, markets can shift quickly! Do your research when you begin your house search.  

Find a real estate agent

While it’s not required, it’s definitely worth hiring a real estate agent to help you buy a house in Colorado. House-hunting is a full-time job! 
Professionals have access to special listings and they have valuable expertise. Keep in mind that all agents have a different area of focus. Pick someone who has worked in the community you want to live in. They should respond to your emails promptly, too. 

Make an offer

If you find the dream property—and it passes all the inspections–it’s time to make an offer. This means paperwork and timing. Hopefully, in a few days, you should know whether your offer is accepted! Then, you can make the required payments and begin life as a homeowner in Colorado.

How to save on homeowners insurance

Saving money is top of mind for homeowners from the day you get the keys. To put more money back in your pocket, find an affordable
home insurance
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