Everything You Need to Know About Buying a House in Montana

Beautiful landscapes and affordable living make Montana a great place to buy a home. Here’s what you need to know.
Written by Patrick Price
Reviewed by Melanie Reiff
Montana, or the Treasure state as it is known, is rich with natural beauty and wide-open spaces. The average price of a house in Montana is $408,841 which is about 7% higher than the national average. The below-average cost of living, though, makes Montana a great place to look for a new home, a new start, and a great big sky! 
Unfortunately, it's no secret that Montana is a wonderful place to live, so homes are in high demand. This means that real estate prices are going up steadily, and it’s important to act quickly. 
Luckily, the insurance super-app
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Figure out your finances

Before you do anything else, you’ll need to evaluate your finances. It is crucial that you understand exactly what sort of house you can afford. To figure that out, you’ll need to calculate your credit score and your debt-to-income (DTI) ratio.  You’ll also need to be familiar with what additional costs accompany buying a house and estimate how much they will be. 
Break out your calculator and the number 2 pencils. Let’s figure out what kind of house in Montana you can afford!

Check your credit score

The very first thing you’ll need to do is check your credit score. This is the main factor mortgage lenders will use to determine how much they can lend you. There are several free tools online, such as Credit Karma, that you can use to get your credit score.
Let’s talk numbers. A credit score between 670 and 739 is considered strong, while anything below 670 is generally considered pretty weak. For buying a home, you’re going to want a credit score of at least 620 to qualify for a conventional mortgage loan. 
If you find out that your credit score is below 620, you may want to consider waiting to buy a house until you’ve had time to raise your score. Buying a home with lower credit isn’t necessarily out of the question though. If you still want to move forward with the process anyway, you have a couple of options. The following organizations/programs offer financial assistance to those looking for housing:
  • Federal Housing Administration (FHA) will sometimes grant mortgage loans to home buyers with credit as low as 523.
  • MoFi tries to help Montana residents secure a zero-down-payment mortgage loan if possible.
  •  Montana Homeownership Network assists with down payments and closing costs statewide.  

Calculate your debt-to-income (DTI) ratio

The next step is to calculate your debt-to-income ratio or DTI. This number is a comparison of your income and your expenses. Basically, it tells potential lenders what percentage of your monthly income is disposable. Calculating your DTI is pretty straightforward, just add up all your recurring monthly payments and then divide by your total income before taxes. Your answer will be a small decimal point number. Move the decimal point over two places to convert it into a percent (DTIs are described as percentages). So, for instance, if you got 0.25 as your answer, that would mean your DTI was 25%.
Remember to include all your recurring monthly payments when calculating your DTI. This should include:
  • Current mortgage or rent payments
  • Car payments
  • Insurance payments
  • Credit card payments
  • Student loan payments
  • Alimony or child support 
The lower your DTI is, the better your odds of securing a mortgage will be. Ideally, you want to have a DTI at or below 36%. 
If you find out that your DTI is above 50%, you’re going to have a very difficult time buying a house in Montana. If you can, reduce your monthly expenses. Otherwise, you may have to postpone your purchase.

Determine your down payment 

One of the biggest factors that will determine what sort of house you can buy, is how much you can put towards your down payment. You’ll be expected to pay at least 20% of the house’s total value out of pocket. This amount is called the down payment. 
What sort of down payment you can make will greatly affect what sort of mortgage you’ll be offered and what sort of house you’ll be able to buy. If you are not able to make a 20% down payment, there are a couple of things you could try:
  •  Apply for a mortgage through the FHA. They will sometimes grant mortgages to individuals for as little as 3.5% down.
  • Consider buying mortgage insurance. Some lenders will consider allowing a down payment below 20% if you have mortgage insurance.
  •  Veterans and active-duty military personnel also have the option to apply for a home loan through the Veterans Administration (VA) which can have a down payment of as low as 0%. 

Prepare for closing costs and other fees

Closing costs is a blanket term used to describe all the additional charges and fees you will need to pay before closing on a house.
Generally, most home buyers should expect to pay between 1-5% of the house’s total value in closing costs. 
Closing costs typically include some or all of the following:
  • Credit report fee
  • Home inspection fee
  • Home appraisal fee
  • Mortgage origination fee
  • Mortgage insurance premium
  • Homeowners insurance
  • Property taxes

Look for homeowner’s insurance

Most mortgage lenders will require you to purchase
homeowner’s insurance
as a condition of your mortgage. You will probably be required to keep adequate coverage on the house for the entire term of the mortgage. 
But that is just as well, it is a very good idea to always keep your home insured. Since houses are such large investments, extensive damages to uninsured houses can be catastrophic. 
The average cost of homeowner’s insurance in Montana is $1,770 annually compared to the national average of just $1,477. Not all insurance providers offer the same rates though, so it’s important that you compare prices from at least three providers before choosing a company. 
The automated insurance broker app
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Key Takeaway: It is absolutely critical that you thoroughly evaluate your financial situation before you begin shopping for a house. It is the first and most crucial step. Calculate your credit score, DTI, estimated down payment, and potential closing costs before you do anything else!

Get preapproved for a mortgage

The next step in buying a home is to secure preapproval for a mortgage so that you can effectively negotiate prices – you can’t haggle if you don’t know how much money you can spend! Most sellers will not even agree to show you properties unless you have proof of preapproval.
Follow these steps to secure your mortgage preapproval:
  •  Choose a mortgage lender
  • Provide the potential lender with your Social Security Number
  •  Supply all required information including banking information, employment history, property and assets, and any debts or financial obligations
  • Complete the mortgage application
 When you submit a mortgage application, the potential lender will run a hard credit check on you to determine your creditworthiness. Repeated hard checks can damage your credit score, so it is important to be sure you are ready to buy before submitting your application. You don’t want to end up having to submit more than one!

How to pick the right mortgage in Montana

A mortgage, like any loan, has a loan term and a rate. The term is the length of the mortgage, meaning how many total payments you’ll make. The rate is the amount of each payment, it is what you will be charged each month.
The higher your rate is, the shorter your term will be. Conversely, the lower your rate, the longer your term will be – which makes sense. If you are not paying very much each month, it will take you longer to pay everything back. 
Some home buyers prefer to have longer mortgage terms because it means their monthly rate will be lower. Be careful though! A longer mortgage term also means that you will pay more money overall since you’ll be paying interest longer. 
Your interest rate will also be higher for a long-term loan. A 30-year mortgage will usually have an interest rate of about 3.5% while a 15-years mortgage will tend to be closer to 2.5% or lower. 
Generally, you’ll want to find the mortgage with the shortest term you can afford so that you are paying less interest overall.
Remember to always compare offers from multiple lenders before choosing one!

Look for a house

Now, it’s time for the fun part! Shopping for your dream home is one of the more enjoyable steps in the process. Let yourself get excited and enjoy the hunt. You’ve earned it!

Pick your city or neighborhood 

Picking the right city in Montana is a vital part of the search. You’re going to be living there for a long time. Make sure the city you pick is a good fit for you. Do some research. Get to know the area. See if it meets your needs for atmosphere, weather, social setting, school zones, safety, crime rates, etc. 
Make a list of everything you are looking for in a home/city. Number the items on your list in order of how important they are to you. This will help you keep your initial priorities in focus while you shop.
If you’re looking for an affordable home, Colstrip, Scobey, and Chester are some of the least expensive places to find a house in Missouri.
, and Manhattan, on the other hand, are a bit more expensive but offer some of the highest living standards. 

Buyer’s market vs. seller’s market

The next thing you’ll need to do is find out if your chosen home is in a buyer’s market or a seller’s market. This will be very helpful when negotiating prices. Here’s the difference between the two:
  • In a buyer’s market, supply is greater than demand. More people want to sell their house than there are buyers. This situation helps the buyer because the seller will be more eager to make a deal.
  • In a seller’s market, the opposite is true. Demand is greater than supply. More people want to buy houses in the area than there are properties for sale. This situation means the seller has more power and buyers will need to compete or even outbid one another. 
The easy way to remember this is that a seller’s market helps the seller, and a buyer’s market helps the buyer.
Check the details of recent house sales in the area in question. If houses tend to sell quickly for close to their original asking price, you’re dealing with a seller’s market. If houses tend to sit on the market for longer and sell for below the original asking price, you’re in a buyer’s market. 
Since so many people are currently trying to move to Montana, most areas will be seller’s markets. Be ready for some competition when you start shopping!

Find a real estate agent

If all the information above has seemed a bit overwhelming, don’t panic. Buying a home is almost a full-time job and a lot of buyers feel intimidated. That’s why so many people choose to hire a real estate agent. 
Buying a home is every bit as complicated as it looks. Real estate agents are trained professionals who specialize in the process. A good agent can save you a lot of time and money. When selecting your real estate agent check to see that they have experience in the area you’re dealing with. You want someone who knows the local market well
In a competitive seller’s market, it is also important to have an agent who communicates promptly so you don’t miss any opportunities.

Make an offer

Now that you have gotten all your financial ducks in a row, chosen a house, and hired a real estate agent, it’s finally time to make an offer! Your agent will help you calculate what offer to make based on your budget and the local market.
If everything goes well and your offer is accepted, you are all set! Pack your bags and get ready to move into your new home!

How to save on homeowners insurance

After the huge expense of buying a new home, the last thing you want to do is overpay on
homeowner’s insurance
. It’s important to get good coverage so that your home is protected, but that doesn’t necessarily mean your premiums have to be high. Even in a place like Montana where insurance rates tend to be expensive, there are ways you can save
The number one thing you can do to ensure you’re getting the best deal is to compare prices from multiple providers. If you’re not eager to do even more paperwork, that’s ok! The price-comparing and load-lightening automated broker and all-around insurance guru
is here to make things easier for you!  
Download the Jerry app and let us fill out the paperwork and compare quotes for you. In just a few seconds, you’ll be picking your preferred policy. We’ll even help to cancel your old policy, so you don’t have to!  Shopping for insurance has never been this simple!
Remember that you can
bundle your home and auto policies
together for even more savings, and Jerry can help with that too!
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The exact price will vary from house to house, but the average cost of a house in Montana is $317,725. To cover a 20% down payment and closing costs of around $3,020, you’ll want to have at least $66,565 ready to spend.
To qualify for a conventional mortgage loan, you will need a credit score of at least 620. If your credit score is too low for a conventional mortgage but still higher than 530, you might consider applying for an FHA mortgage instead.
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