Everything You Need to Know About Buying a House in New Mexico

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Buying a house in New Mexico requires a credit score of 620, a downpayment of at least 20%, and proof of home insurance to obtain a mortgage loan. Make sure to get your finances in order and set a budget before you begin house-hunting.  
New Mexico—also known as “The land of Enchantment”—offers a great climate, amazing vistas, and rich culture and history. There are plenty of reasons to consider buying a home there. But it isn’t as easy as jumping on Zillow and picking a place. 
Buying a house is often the biggest investment you will make in your lifetime, so it is normal to feel overwhelmed. Luckily, home and car insurance expert Jerry is here to answer all your questions about buying a house in New Mexico. 

Figure out your finances

Before you even think about looking at houses, you have to determine what you can afford. This process includes understanding (and maybe cleaning up) your credit score, calculating what you have for a down payment, and considering what size monthly mortgage payment you can handle. 

Check your credit score

Your credit score is often the single most important factor in the home buying process. Know your credit score before you do anything else
You should have a credit score of 620 or higher to buy a house in New Mexico. So if you are planning to buy a home in the next couple of years, now is a great time to check your credit
In general, a higher credit score means a better interest rate on your mortgage, which will save you thousands of dollars in the long run. If your credit score has room for improvement, you can work on it before you continue the home buying process. 
Here are some strategies to help you raise your credit score:
  • Pay bills on time. Paying bills on time is the biggest factor in the credit scoring systems used by mortgage lenders. Late payments can show up on your credit report for 7 1/2 years. At a minimum, strive for no late payments for a full year before applying for a home loan. 
  • Report any errors or suspicious activity found on your credit report. Negative accounts older than 7 years, incomplete or incorrect account information, or accounts you don’t recognize can all contribute to a lower score. 
  • Avoid opening new credit accounts. Opening new accounts can hurt your credit. Instead, ask for increased limits on the cards you have. As long as you pay them down, higher limits will have a positive impact on your credit utilization rate
  • Pay off past due accounts. Work strategically with your debtors to resolve past-due accounts. Make sure to ask them to remove or modify the credit report once the amount owed is paid in full. 
Another option is to work with a special lender if you qualify. The Federal Housing Administration (FHA) and Veterans Administration (VA) both offer loans for folks with credit scores in the high 500s. 

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio (DTI) is the percent of your gross monthly income that is used to make payments on monthly debts like car payments, credit card bills, rent/mortgage payments, student loans, etc. 
Lenders look at this number to help determine your ability to make monthly mortgage payments. The lower your DTI, the better you look to lenders. In New Mexico, preferred buyers have a debt-to-income ratio of 36% or lower. 
Calculate your debt-to-income ratio by adding up all of your monthly expenses (credit card payments, rent, child support, etc.) and divide the sum by your monthly pre-tax income. 
Let Jerry help you improve your DTI by reducing your overall monthly payments on car insurance

Determine your down payment 

For a conventional loan from most lenders, you will need to put down a minimum of 20% of the total cost of the house. The median home cost in New Mexico is $246,000—about 15% lower than the national average. That means your down payment will likely be a minimum of $50,000
If you’re not able to make a 20% down payment, some options may be available to you, including:
  • FHA loan: A mortgage insured by the Federal Housing Administration for low- and moderate-income homebuyers (especially first-time homeowners)
  • VA home loan: A mortgage insured by the Veterans Administration for service members, veterans, and eligible surviving spouses
  • MFA homebuyer programs: The New Mexico Mortgage Finance Authority (MFA) has several loan and downpayment assistance options for New Mexico buyers  
Both FHA and VA loans typically have a 4-5% interest rate for a 30-year mortgage. This can be a little higher than conventional loan interest rates, especially if the borrower has a low credit score and/or a smaller down payment. 
Don’t forget closing costs. Closing costs include things like inspection and appraisal fees, real estate commission, fees, taxes, and title insurance. These fees typically add up to 3-6% of the total cost of the home and will be due at signing along with your down payment. 
Key Takeaway Understanding your financial situation is always the first step to buying a house in New Mexico. Know your credit score, DTI, and credit utilization rate. Ensure you have enough savings for a down payment and closing costs before you proceed. 

Prepare for closing costs and other fees

In addition to your down payment, you will have to cover closing costs as a condition of buying your new house. The average homebuyer in New Mexico will pay around $2,050 in closing costs—but that number is heavily influenced by current market conditions.
Closing costs typically encompass:
  • Home appraisal fee
  • Credit report fee
  • Home inspection 
  • Mortgage origination fee
  • Earnest money (a good-faith deposit that will go towards your down payment)
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Property tax rates in New Mexico are among the lowest in the United States. The average homeowner will pay around $1,400 per year, which is 47% lower than the national median. 
There are also property tax breaks for New Mexico Residents, including:
ExemptionAmountEligibility
Head of householdUp to $2000Single, widowed, or married head of household responsible for at least half of the cost of caring for a relative
VeteransUp to $4000Honorable service, served continuously for 90 days, or surviving spouses
Disabled veteransFull exemptionHonorable service, disabled because of a service-related injury, or surviving spouses
Low-income value freezeFreezes the property's assessed value even if the market value goes upPeople 65 and older, legally disabled, low-income (can increase with inflation)
Look for homeowners insurance
Homeowners insurance is the best way to protect your investment and it is required by virtually all mortgage lenders. There are hundreds of providers, policies, and types of coverage available, so you’ll definitely be able to find a policy that fits your needs. 
In New Mexico, a homeowners policy should include coverage against thunderstorms, lightning, fire, and water damage. Flood insurance should be purchased separately.
Finding the proper insurance can be daunting, but insurance broker super app Jerry can help you find the best rates. On average, Jerry users save $887 per year on car insurance alone—that can go a long way in helping offset the other costs of owning a home. 

Get preapproved for a mortgage

Once your finances are in order and you’ve set a budget, the next step is to get preapproved for a mortgage. Most realtors and sellers will ask that you have preapproval before attending a showing.
Start by applying to lenders. If you already have a good relationship with your bank, they can be a great place to start. Find out what is required for preapproval and ask about any first-time homebuyer programs or other discounts. Speak with more than one lender and compare interest rates and fees. 
Look for lenders who work with FHA, VA, MFA, and USDA home loans if you want to take advantage of those programs.
Remember not to apply for preapproval until you’re ready to start the homebuying process. This is because the lender will run a hard credit check, which can cause your credit score to drop, and you don’t want to have to do this more than once.

How to pick the right mortgage in New Mexico

Choosing the right mortgage has more to do with your lifestyle than your location. The first thing to consider is the amount of time you plan to stay in your home. If you have found your forever home, a fixed-term loan is likely your best bet. 
If you plan to move on after a few years, you might consider an adjustable-rate mortgage, which will offer lower payments for an initial period (up to ten years) and then is adjusted annually based on market conditions. 
Next, think about how much time you will need to repay your loan. Most fixed-term loans offer a 15-year or 30-year payment option. 
The length of your mortgage impacts your interest rate. The shorter your repayment term, the higher your monthly payments will be—but you will build equity faster and save thousands over the life of your loan. 

Look for a house

Now for the fun part! After you’ve pre-qualified for a mortgage, you know exactly how much money you’re working with. The next step is finding a location that gets you the most for your money and works great for your lifestyle. 

Pick your city or neighborhood 

If you are primarily concerned with the cost of living, look for homes in areas like Grants, Lovington, Carlsbad, Hobbs, and Roswell—all of which offer safe, beautiful neighborhoods on a budget. 
If you thrive in the city, head to Albuquerque, the biggest city in New Mexico. You will pay more for your home, but you will also have easy access to all that the city has to offer. 
If only the best will do, check out Corrales, voted the best place to live in New Mexico for the past two years. However, you will pay nearly twice as much as the state average for a home there. 

Buyer’s market vs. seller’s market

Not in a hurry to move? Find out if the real estate market in New Mexico favors buyers or sellers when you are considering a move. 
It can be pricey to buy a home in a seller’s market, when the number of buyers exceeds the number of sellers, driving up prices and creating bidding wars.
If you can, hold out for a buyer’s market—which is when the supply of houses for sale exceeds demand. These conditions are ideal for low-pressure negotiations where buyers can obtain homes without having to offer much more than the asking price. 

Find a real estate agent

Buying a home is a complex and sometimes lengthy process. The seller will likely be working with a listing agent, whose job it is to get the best deal for their client. Make sure you have someone doing the same for you. 
Look for a local agent with experience who knows the area you want to live in. Ask to look at their portfolio and check out customer reviews. You want to find someone who’s known as professional, prompt, and knowledgeable.

Make an offer

Once you’ve found an agent, poured over the listings, toured homes, and found what you have been looking for, it’s time to make an offer. 
Your realtor will be there to help you prepare an attractive offer. Your offer should include your mortgage preapproval letter and as generous a deposit as you can afford. 
You may want to add a personal letter to your offer if you have something special to communicate to the seller. This doesn’t always make a difference, but it can help to personalize the experience.

How to save on homeowners insurance

Jerry is the easiest and most effective way to find an insurance policy that is customized for you.
After providing you with a comprehensive analysis of the best policies across providers, Jerry will handle the phone calls, paperwork, and renewals for your top pick so that you don’t have to. They can even help cancel your old policy upon request! 
Why do all that extra work when Jerry can do it for you?
Jerry was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.

FAQs

The average cost of a home in New Mexico is $219,406. To get started with a conventional loan, you will need 20% down plus closing costs and fees, bringing your initial payment to about $50,000.
In most cases, you will need a minimum credit score of 620. With some government-backed loans, lower credit scores will be considered.
Corrales, Los Ranchos de Albuquerque, Edgewood, Rio Rancho, and Santa Fe are some of the best places to live in New Mexico based on metrics like safety, median income, culture, cleanliness, and economy.

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