Tips to Avoid Going 'Underwater' Buying Colorado Real Estate MarketPosted on Jan 03, 2019
Going underwater on a mortgage means owing more on your Colorado real estate than the home is worth. With the rapid increase in home values in recent years in Castle Rock, Westminster and surrounding areas, most homeowners aren't upside down on their mortgages. Because of the Great Recession, some homeowners have lingering fears about their home's long-term value. When buying a home Colorado, it's important to buy a home that will maintain its value so you have the flexibility to move. Having more home equity also opens up other financial opportunities such as money for renovations. By working with an experienced Colorado real estate agent, you lower the chance of buying a home with little resale appeal. Start by figuring out a realistic budget so you don't over-extend yourself when buying in the Colorado real estate market. While there is a shortage of "starter homes" in the lower price range, it's still possible to find a home that will meet your family's needs as well as help you build your net worth.
Putting down a hefty down payment
About a decade has passed since the housing decline that put a lot of Colorado homeowners underwater on their mortgages at that time. A foreclosure is when a person fails to pay their mortgage and the lender starts the process of essentially taking the home back. People who are underwater or owe more money than their home is worth often let it slide into foreclosure. Although you don't control the housing market overall, you can increase your odds of avoiding an underwater mortgage by putting down at least 20 percent. Also, avoid overreaching to afford a mortgage. According to an article by doughroller.net, it's a great time to buy even with slightly higher interest rates.
Understanding hidden advantages
One of the hidden advantages of a down payment of 20 percent is that you start with 20 percent equity in your home. In addition to being less likely to go underwater on the mortgage, you also avoid paying PMI or private mortgage insurance. Some people take the money they would have paid for PMI and use it to pay down their mortgage so they pay off their house early. Even if you can't come up with a 20 percent down payment when you buy your first home, making extra payments helps you get rid of the PMI sooner.
Figuring out what you can afford
According to a piece by usatoday.com, a few steps to figure out how expensive of a home you can afford include preparing a budget, planning for higher expenses and determining a realistic mortgage payment. Experts point out lenders typically allow borrowers to borrow an amount equal to no more than 28 percent of gross monthly income. The mortgage includes the principal as well as interest, homeowner's insurance and property taxes. Your debt payments cannot go beyond 36 percent of your monthly income. If you aren't a math person, ask your lender to help you crunch numbers. Knowing what you can afford also means accounting for new expenses such as HOA fees, higher utility costs and maintenance issues such as lawn care or pest control.
Although a lot of homeowners were underwater on their mortgages 10 years ago, that's no longer the case. Higher home prices helped most owners regain equity. While it's not fun to owe more on a mortgage than a home is worth, it's typically a temporary situation. Experts point out homeowners have more net worth than renters because they gradually build equity in their homes. By switching from renting to owning, you improve your odds of retiring with more money.
At Team Lassen, we help aspiring and current homeowners with all their needs. For more tips on navigating the Colorado real estate market, please contact us.