What Buyers Should Know About Buying a Home in Colorado

September 7, 2021
Last updated:
April 7, 2022
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Are you considering buying a home in Colorado? If so, you should get familiar with a few important facts before jumping into the market.

Why Buying a Home in Colorado is a Good Investment

There are so many reasons to call Colorado home. The state is known for its natural beauty thanks to the infamous mountainous peaks of the Rockies, Pikes Peak, Mount Evans, and others. It’s also popular among outdoor enthusiasts all throughout the year.

As far as real estate is concerned, Colorado is currently ranked as the 3rd best state for low property taxes, and 8th best state for high rental income for those who own real estate for investment purposes. And with home values in Colorado constantly on the rise, buying a home in Colorado makes for a sound investment.

Here are a few things you should know about buying a home in Colorado.

Home Prices in Colorado Are Soaring

Home prices across the state of Colorado are skyrocketing lately. In particular, home prices have spiked 23.5% over the past 12 months, according to real estate research firm Zillow. As of April 2022, the average price for a home in Colorado is $558,210

That means home buyers who bought a home at the same time last year saw home value appreciation of 23.5%. In turn, these homeowners have been able to build home equity very quickly within a short span of just one year. 

Home equity is a great asset to have as it not only means that you own an asset of higher value, but it also means you may be able to tap into your home equity to borrow money to cover the cost of a large expense. 

Home prices are expected to follow a similar pace in appreciation over the next year, which means if you buy today, you can expect to realize significant home equity gains in a short period of time, and for the remainder of the time that you own your home.

Colorado Springs Has Been Especially Hot This Year

All markets across Colorado have been hot this past year. But one market in particular that has seen especially-high home price gains is Colorado Springs. In this city, home prices have increased a whopping 26.8%, according to Zillow. Right now, the average home price in Colorado Springs is $469,987.

Other cities in Colorado that have also seen major price gains include Denver, with an average home price of $608,955, a 19.6% increase from the same time last year. Boulder has also been hot, with home prices having increased 21.9% over the past 12 month to now stand at $1,027,432.

Housing Inventory in Colorado is Tight

Right now, it’s a sizzling seller’s market in Colorado. That means buyers are snatching up homes very quickly, and sellers are able to sell within days and for top dollar.

As a result, housing inventory is very tight. More specifically, there is only about a 2-month supply of homes available for sale in the state. That barely meets buyer demand. A balanced market is one that has around 5- to 6-months’ worth of housing inventory. Clearly, Colorado’s current inventory status doesn’t come even close to a balanced market.

According to RedFin, homes spend an average of 13 days on the market before they’re sold. The sale-to-list price is 103.8%, which means homes are often selling over the asking price. In fact, about 64.4%of homes sold over the listing price over the past year. 

As a homebuyer looking to buy a home in Colorado, expect to see some competition among buyers looking at homes. As such, you’ll want to make sure you go into the market prepared to make a solid offer quickly. 

Mortgage Interest Rates in Colorado Are Rising

The mortgage interest rate you pay on a mortgage plays a key role in the overall cost of your home loan. The lower the rate, the less you’ll pay over the term of your mortgage. That’s why it’s so important to snag the lowest interest rate possible when you secure a mortgage, as even a small difference in rates can make a big difference in how much you pay over the life of your loan. 

Today’s rate for a 30-year fixed-rate mortgage is 4.72%. Rates have been rising for the past year, and are expected to continue rising. Buyers may be well-advised to get into the market now before they continue getting higher. 

To show you how much of a difference rate changes can make, let’s illustrate using a home loan amount of $500,000 for a 30-year fixed-rate mortgage. Using a mortgage rate of 2.87%, your monthly mortgage payments would be $2,068, and your overall interest payments would amount to $244,690. 

Let’s say you waited to buy a home and apply for a mortgage, and rates went up just 1%, to 3.87%. Using this rate, your monthly mortgage payments would increase to $2,340, and your overall interest payments would rise to $342,741. That’s a difference of almost $100,000!

As you can see, taking advantage of a very low mortgage interest rate is an excellent way to keep your mortgage payments down and to minimize the amount you’ll have to pay for your mortgage overall.

You Don’t Need a Massive Down Payment

In order to qualify for a mortgage to buy a home in Colorado, you need a down payment. The exact amount required will depend on the type of mortgage you’re taking out, your credit profile, and the price of the home you’re buying. 

Many buyers are under the assumption that you need at least a 20% down payment to take out a mortgage, but that’s not necessarily true. While a 20% down is needed in order to avoid Private Mortgage Insurance (PMI), it’s not required to secure a mortgage in most cases. 

In fact, you may be able to get away with as little as a 3% down payment for a Conventional 97 loan program offered by many lenders and backed by Fannie Mae and Freddie Mac. And FHA loans allow many buyers to put down as little as 3.5% towards the purchase of a home. 

As such, there’s no need to have to come up with a huge down payment to buy a home. It should be noted, however, that the higher your down payment, the lower your loan amount, and therefore the lower your monthly mortgage payments. 

Mortgage Pre-Approval Can Be Extremely Helpful

Before you start looking for a home to buy in Colorado, it’s important to speak with a mortgage broker to get pre-approved for a mortgage. Getting pre-approved will tell you how much you can afford in a home purchase. Your lender will assess the documents you provide and your credit score to determine how much of a loan they will approve you for.

Mortgage pre-approval will also make you a more qualified buyer in the eyes of sellers. This is particularly important in a competitive market when you’re competing with other qualified buyers. 

Ready to Apply For a Mortgage?

Do you have questions about mortgage rates this week and home loans? Or are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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