Tackling Colorado's Housing Scene
Colorado's housing market is constantly changing. With property prices going up and fewer homes available, buying a house can be challenging for young people. With my 30+ years in mortgage lending and teaching experience, I'm here to make this process easier. Let's dive into how you can buy a house in your 20s in Colorado
1. Building a Credit Foundation: The Key to Unlocking Your Home
Why Starting Early is Crucial
A solid credit history can be the cornerstone of securing a favorable mortgage. But many young Coloradans find themselves without traditional credit history, often due to college commitments or parental assistance. My advice? Start building your credit as early as 18. But remember: tread responsibly.
A Closer Look at Traditional vs. Non-traditional Credit
Many young Coloradans, fresh from college or stepping into early adulthood, find that their credit history is a blank page. Why? Several reasons:
College Commitments: With the hustle of college life, credit-building often takes a backseat. You might be engrossed in studies, making ends meet with part-time jobs, or even relying on your parents.
Parental Assistance: Graduating and finding that your folks covered utilities and rent? A wonderful gesture, but it often means missing out on building a traditional credit history.
Now, while there are non-traditional credit programs available that don’t demand a credit score or history, they come with their requirements. Such programs often ask for documented history, like:
Rent Payments: A year's proof of you consistently paying rent.
Utility Bills: Evidence that you've been diligent with utility bills for at least 12 months.
Yet, here's a catch: many young clients I've worked with don't have these proofs, especially if they've recently transitioned from their family's home or college dorm.
Kickstarting Your Credit Journey
To maneuver through these challenges, my golden advice is straightforward: start building your credit once you hit 18. The earlier you begin, the better your credit foundation becomes when it’s time to approach a mortgage. Wondering how?
Secured Credit Cards: Start with a secured credit card. It requires a deposit but can be instrumental in building credit if used wisely.
Student Credit Cards: Several banks offer credit cards tailored for students. They come with lower credit limits but are a good starting point.
Become an Authorized User: If your parents have a credit card, consider becoming an authorized user. It allows you to benefit from their credit habits.
But a word of caution: with great power (or in this case, credit) comes great responsibility. Ensure you're spending within means and paying off balances punctually.
I understand the confusion surrounding credit-building. To help you navigate, I’ll be rolling out a comprehensive guide on credit-building tactics suited for young adults, especially in
Colorado context. Stay connected for that!
2. Employment Consistency: Your Financial Backbone
Stability Over Spontaneity
In Colorado, there are many job opportunities, but if you want to buy a home, it helps to stick with one job type. Lenders like to see you've worked in the same field for two years. There are some exceptions, like if you start a job right after college that's related to your degree. But jumping between different kinds of jobs can make lenders nervous.
Diving into the Two-Year Rule
Lenders love stability. And one of the primary ways they gauge this is by looking at your employment history. A standard criterion many adopt is a two-year employment track record within the same industry or field. But why?
Reliability Indicator: Maintaining a job in the same sector illustrates your commitment and paints a picture of income stability, which assures lenders of your repayment capacity.
Projection of Future Earnings: A steady job in a consistent industry provides lenders a clearer view of your potential future earnings, ensuring them of the mortgage's long-term viability.
Exceptions to the Rule: The Silver Lining
Colorado's diverse academic institutions, from Colorado Mesa University, the University of Colorado to Colorado State University, churn out graduates yearly, many of whom seamlessly transition into jobs aligned with their majors. For these individuals, there’s good news: certain exceptions can shorten the required employment duration.
Examples include:
From Classroom to Classroom: Secured a teaching role right after your graduation? If you've got a teaching certificate and landed a teaching contract, lenders often accept your contract amount even if you've not hit the two-year mark.
Specialized Professions: Fields requiring specific educational qualifications, like dental hygienists, doctors usually receive more flexible considerations. So, if you’ve recently graduated from medical school and have begun your residency, this counts favorably.
Trade School Graduates: Vocational training is integral to Colorado’s economy. If you've graduated from a trade school and stepped into a related job, lenders tend to be more accommodating.
Be careful about switching jobs too often. Changing from being a barista in Boulder to a retail store job in Aspen, and then to a help desk role in Grand Junction, despite the rich experiences, might raise eyebrows for lenders. Why? These roles, while valuable, span different industries, making it challenging to establish a stable income pattern.
In Essence...
While it's tempting to ride the wave of Colorado's diverse job market, a touch of patience and strategy can smoothen your homeownership journey. Secure a position, grow within it, and present lenders with an employment narrative that speaks of stability and commitment. And if you’re treading unconventional paths, always remember: there’s often room for exceptions.
3. Embracing the Mortgage Payment Strategy
Prepare, Practice, Purchase
Colorado's real estate prices can be steep, especially with low housing inventory pushing prices up. Here's a strategy I've recommended time and again: make a mortgage payment to your savings account every month. If you’re still at home or benefiting from subsidized parental housing, determine your potential mortgage payment and deposit that amount into savings each month. This tactic not only demonstrates your commitment to lenders but also accumulates a handy down payment.
The Logic Behind the Mortgage Simulation
Buying a house is often the most significant financial commitment of one's life, especially in a market as competitive as Colorado's. Before plunging into this commitment, it's wise to test the waters. Here’s how:
Financial Forecasting: Begin by researching typical house prices in your preferred Colorado locality. Whether it’s the bustling streets of Denver or the serene landscapes of Grand Junction, get an approximate idea of mortgage payments.
Saving-as-if: Once you've forecasted a potential monthly mortgage, treat it as a current bill. Each month, transfer this amount into a dedicated savings account. It’s like a rehearsal for the real deal.
Growth and Gratification: Over time, this "simulated" mortgage payment accumulates. Not only do you build substantial savings, but you also develop financial discipline.
The Dual Benefit: Proving and Saving
This mortgage strategy isn't just about building savings; it’s also about building trust. Lenders are more likely to green-light your mortgage application when they see:
Proven Financial Responsibility: Regularly saving a significant amount reveals financial maturity and readiness for the responsibilities of homeownership.
Buffer Against Payment Shock: Suddenly facing a hefty monthly payment can be daunting. But if you've been mimicking this for a year or so, it reduces the risk of "payment shock." Lenders are reassured knowing you’re prepared for the transition.
And there's a cherry on top! While you're proving to lenders that you're a reliable candidate, you’re simultaneously gathering funds for a substantial down payment. This can potentially lower your mortgage rate or reduce the loan amount.
The Power of Personalized Planning
Large call-center lenders or even some local lenders might give you a one-size-fits-all plan. But here's where my three-decade experience differentiates: I believe in personalized advice. I’ve witnessed countless clients benefit from early property investments. As rents surge, owning a home in Colorado is not just a dream but a sound financial decision. Don't just pay someone else's mortgage; invest in your future.
Turning Your Dream into Reality
Purchasing a home in your early 20s in Colorado is achievable. But, like any significant milestone, it requires planning, persistence, and the right guidance. With my deep-rooted expertise in mortgage lending and a passion for educating, I'm committed to making your Colorado homeownership dream a reality.
Unlock Your Homebuying Success
Ready to step into Colorado’s real estate market confidently? Let’s create a tailored plan for you. Reach out to me at 970-855-9009.
Contact me today!
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📧 Email: fred.gallegos@rate.com
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Disclaimer: Fred Gallegos is a licensed loan originator specializing in the states of Colorado and Georgia and operates this blog as a private individual. While he endeavors to provide the most accurate and up-to-date information, this should not replace official guidelines and regulations.
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