With sellers once again in the driver’s seat due to historically low inventory and continued high demand, we put together a road map for would-be buyers searching for their perfect—or, at least, almost perfect—home.
1. Be ready to pay well over asking
The Mile High City housing market ended 2021 with record-low inventory and record-breaking appreciation—which combined to make bidding wars the new normal for potential homebuyers. Don’t expect much to change in 2022: This past January, agent Karen Dorfman of Denver’s BSW Real Estate reported 60 showings of one single-family home over five days. The home garnered 23 offers, the highest of which was $115,000 over the $650,000 list price. Indeed, according to the Denver Metro Association of Realtors’ annual market report, last year’s close-price-to-list-price ratio averaged 104 percent for single-family homes and 105 percent for multifamily units. Translation: You’re almost certainly going to pay more than a house is listed for. “I always tell my clients to seek out homes $25,000 to $50,000 less than your loan,” says Monica Askew, an agent with Equity Colorado Real Estate.
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With all that said, there may be some good news for buyers. Experts predict that Denver will hit an “affordability plateau,” a phenomenon that occurs when a market is flush with high-priced homes and has so few buyers that properties sit on the market longer. This prompts sellers to lower the prices until offers begin rolling in. We’re not there yet, but, “we’ll get back to something closer to what affordable used to mean,” says Bret Weinstein, founder and CEO of BSW Real Estate.
2. Get your finances in order and then find a lender
One of the biggest mistakes first-time homebuyers make, according to Lorie Jackson, a senior loan officer at Denver’s Fairway Independent Mortgage Corporation, is looking through for-sale listings before speaking with a mortgage lender. Why set yourself up for heartache? Instead, let a professional ease you into a smooth(er) approval process.
If: You’re a first-time homebuyer
Then: Go over your financials with a lender three to six months before the date you hope to close on a home. That way, you’ll have ample time to fix any errors with your credit score.
If: You’re preapproved for a loan
Then: You’ll know exactly how much you can borrow, which makes everything that much clearer. An official preapproval letter also signals your seriousness to sellers.
If: Your credit score is in the mid-600s or lower
Then: Try to pay down some debt. Your credit utilization ratio, which measures how much credit you’re using compared to your credit limit, is a key component banks use to determine your loan amount.
If: You don’t have five to 20 percent of the purchase price for use as a down payment
Then: Keep calm and ask your potential lender about first-time homebuyer assistance programs, such as SmartStep Plus from the Colorado Housing and Finance Authority.
If: You get approved for a U.S. Federal Housing Administration (FHA) loan
Then: Your lender will inform you that waiving inspection—which often sweetens a deal in a tight market—isn’t an option.
3. Budget for interest rates to go up this year
In December 2021, Federal Reserve chairman Jerome Powell announced the central bank was looking to raise interest rates several times over the course of 2022. We spoke to Bret Weinstein, founder and CEO of BSW Real Estate, about the implications.
5280: The Fed raised interest rates by a quarter point this past March. What does that mean to the average homebuyer?
BW: They need to know what those increases mean to their bigger picture. Although rates are going up, it doesn’t make homebuying unaffordable. Rates, by themselves, don’t do that. But they’ll want to buy sooner than later.
Many economists expect another half dozen interest rate increases this year—and Fed hikes can make mortgage rates rise too, right?
Right. After the March increase, mortgage rates went up to 4.5 percent, meaning buyers lost approximately $150,000 of purchasing power.
How would that affect a typical monthly mortgage payment?
A $3,000 monthly mortgage payment was achievable on a $700,000 home at three percent interest. With appreciation plus a 4.5 percent rate, now you’re going to have to find a home $150,000 less or put down as much as 45 percent to keep that monthly payment at $3,000.
What might happen if we see another COVID-19 variant and a spike, like we saw with the delta and omicron variants?
That puts us into a position where rates may fall or not go up as quickly as the Fed would like them to.
Any parting advice for buyers?
If you’re looking to buy, you’re in a better position now rather than later in the year, when prices will probably be higher and interest rates will likely be higher. Focus on what you can afford monthly, because that’s what you’re going to live with for the next 30 years.
Average home sale price in Denver this past March, a nearly 20 percent increase from March 2021; in 2010, the average home price was $261,897
4. Determine what you can live without
Available and affordable are two rarities in this market, which means you’re almost certainly going to have to compromise on your list of must-haves. “Ultimately, buyers may have to give up some of the things on their wish list in order to get a house,” says Steve Thayer of the Thayer Group, which is part of Keller Williams, in Castle Rock. “But one of the things we tell them is we will not allow them to settle.” Figuring out what not settling looks like is the challenging part. “A house may not have everything—and most houses don’t,” says Beth Armijo of Armijo Design Group, who assures her clients that what’s most important is buying a home with “good bones” or on a lot where expansion is possible. As your home appreciates, you can refinance or take out a home equity loan or line of credit for renovations or additions down the road, Thayer says. “Some of our clients come back to us after a few years and say, ‘OK, now we’re ready to really make it our perfect dining room,’ ” Armijo says. So even though you might not buy your dream house, you can build it—one renovation at a time.
5. Beware the risks of waiving contingencies
Contracts are meant to protect buyers—and sellers—but in today’s market, where bidding wars are common and homes go under contract in a matter of days (if not hours), buyers are waiving their rights in order to not lose houses to less-fussy buyers. We took a look at three common contingencies and the relative risks of foregoing them.
Financing contingencies protect buyers in case they run into unforeseen issues with securing their financing. If you waive this contingency, you’ll lose your earnest money, usually one to three percent of the sale price, if things go awry during underwriting.
Home-inspection contingencies give buyers time to have the home inspected professionally. Waiving this contingency means you pass on identifying unforeseen electrical, plumbing, or structural issues—big-ticket items a seller would typically have to remediate before the purchase in a less competitive housing market.
Appraisal contingencies keep buyers from having to pay for a home that is priced well above its value. Some buyers in today’s market are specifying a certain gap they will pay between appraisal and price—often as much as $100,000.
Average amount of time, in days, listings are staying on the Denver market, as of March
6. Understand the difference between FHA and conventional loans
After your lender has gathered your financial information, the alchemical process of determining your loan type and amount begins. There are two common mortgage loans: conventional and FHA. The former is offered by a private lender; the latter is from the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development. Here’s what the differences between the two mean to a potential homebuyer.
Minimum Down Payment: 3%
(For conventional loans, most lenders ask for anywhere between five and 20 percent down.)
Minimum Credit Score: 620
(Scores as low as 500 can also qualify for FHA loans with a 10 percent down payment.)
Maximum Debt-to-Income Ratio: 45%
(Total recurring monthly debt divided by gross monthly income.)
Conforming Loan Limit: $684,250
(The Federal Housing Finance Agency releases a new limit each year to keep pace with the market in an effort to maintain home affordability while encouraging lenders to avoid the risky lending that resulted in the Great Recession.)
Mortgage Insurance: Required if the down payment is below 20 percent
(Conventional borrowers can remove insurance once they reach 20 percent equity; for FHA borrowers with down payments of 10 percent or more, the insurance expires after 11 years.)
Minimum Down Payment: 3.5%
Minimum Credit Score: 580
Maximum Debt-to-Income Ratio: 57%
Conforming Loan Limit: $684,250
Mortgage Insurance: Required for the life of the loan
7. Assess the value of new versus “vintage”
A shortlist of pros and cons for both historical Denver homes and new builds to help you decide what’s best for you.
- It’s turnkey, and nobody’s ever, EVER used your toilet before.
- Many builders allow the addition of custom details, and homes come with a 10-year warranty.
- Say goodbye to bidding wars!
- The walls are often thinner than the bungalows and Victorians of old.
- Your commute might be longer, and your friends won’t visit as often. (Maybe that’s a pro?)
- Waitlists and building delays mean it could be a year before you move in.
This Old House
- You get to own a home with historical charm.
- Hello, walkability!
- There’s nothing like having a canopy of trees as old as your house.
- Houses built before the 1980s are more likely to have lead pipes, asbestos, and cramped floor plans.
- Squeezing a family of four into 1,500 square feet isn’t the dream.
- Poor energy efficiency means your utility bills might run higher.
8. Be Prepared
Floods and fires are becoming more common in suburban and exurban communities across the Front Range. We spoke with experts to find advice on things to do now that will safeguard your home and minimize risk if disaster comes knocking.
Re-evaluate your home insurance coverage
Don’t assume your home is insured for the full cost of replacing it in the event of a total loss. Two-thirds of Coloradans are underinsured, according to Amy Bach, executive director of United Policyholders, a nonprofit insurance watchdog.
Stay up to date
Ask your insurer or agent, “Will this policy cover the cost of replacing my home in compliance with local building codes if it burns down?” In the wake of the Marshall and Middle Fork fires, new mandates for fire-resistant building codes are likely.
Read the fine print
Coverage can vary for a home, its contents, and temporary living expenses that pay for things like rent during a period of displacement. Make sure your coverage is as robust as you need it to be if tragedy strikes.
Inventory your stuff
Hire a professional to document your possessions and their values, or make a home video to document the items in your home, room by room.
Keep vital records off-site
Have some peace of mind knowing that wills, deeds, and power-of-attorney forms are stored in a secure place, such as a safe-deposit box.
Make a plan for things with sentimental value
Create an evacuation strategy for family heirlooms, photos, and your great-granny’s cookbooks.
9. Consider a condo or townhome if you’re a first-time homebuyer
In real estate, your first home purchase is often about, well, getting your foot in the door. Although single-family homes have become even more coveted among a pandemic-weary populace seeking multifunctional spaces to sleep, play, and work, many first-time buyers in the Denver metro area have been priced out. That’s where townhomes or condos, which have an average sale price of $495,000 in Denver, come into the picture. “If you’re not able to get that dream home right now, it’s OK to start somewhere,” says Monica Askew, an agent with Equity Colorado Real Estate. Askew, who works with many first-time buyers jumping from renting to home ownership, steers these clients toward condos as a way to start building equity. “I always tell my clients it’s still better to buy now while interest rates are low and prices are slightly high, even on condos,” Askew says. “When you own a home and you move, you can get that money back—kind of like a savings account. But when you rent and you leave, you get nothing.”
Estimated monthly mortgage payment on a home at Denver’s average sale price, including principal, interest, property tax, and home insurance and assuming a 20 percent down payment
10. Find your perfect home—outside of the Mile High City
When Kenny and I moved back to Denver from Kansas City in 2015, we found an apartment on Emerson and Ellsworth, north of Washington Park. We loved the neighborhood. But rents began to rise. By that time, we’d been together for a few years and knew we wanted to have kids. Affording a home in Denver just wasn’t possible. So I told Kenny, “Let’s start looking in Littleton.” We found a lovely home there, but it was small—like, 700 square feet small. Friends would ask us to host dinner parties, and we’d tell them we could host anytime they were willing to eat their dinners from our bed! Despite its size, our house in Littleton became a home we loved for its strengths: proximity to friends and great restaurants—we were just off the old downtown strip—and a backyard that made up for cramped interior living, especially in the summer months.
In 2020, our lives changed in two major ways. The first was COVID-19. Then, right around the beginning of the pandemic, we found out we were expecting our first daughter. And so we decided it was time to find a place that could suit our growing family.
We both had grown up in suburbs—Kenny in Aurora, me in Highlands Ranch—and I don’t know if it was the morning sickness, but the thought of living a cookie-cutter, Stepford Wives existence made me nauseated. In the end, though, we just couldn’t afford a bigger place, even in Littleton, so we headed to newly built exurbs. We bought a beautiful, two-year-old home in Castle Rock. The excitement of having an actual dining room, and table, outweighed any FOMO. Plus, we realized our friend group was buying out here, too. We still love Denver. But our new home in Castle Rock is exactly what our family needed. —Sarah Ryan and Kenny Suazo, as told to Philip Clapham
11. Find a champion in your agent
According to the Colorado Association of Realtors, this past January there were roughly 22,000 real estate agents working in the state, a little more than 5,000 active listings statewide, and a market flush with buyers and cash (thanks, California). With all this competition, you’ll want someone who won’t ignore your 3 a.m. text messages full of new listings. How can you find the agent who’s right for you? Compass real estate agent Kelly Moye gave us three questions you should ask when looking for your superhero broker.
Are you a full-time real estate agent?
Right Answer: Yes.
Wrong Answer: No.
“Real estate is a full-time job. Novices likely don’t understand the ever-changing market and often lack the negotiating skills needed to get you under contract.”
Do you have a team?
Right Answer: Yes.
Wrong Answer: No.
“In this market, working with more than one or two buyers at a time is impossible without a team to help. When the listings come out on Thursday, we’ve got Friday and Saturday to show and can only be in so many places at one time.”
Are you A brand-new real estate agent?
Right Answer: No.
Wrong Answer: Yes.
“I hate to say this, because I was a new realtor 30 years ago. But, if it were me, I’d go with somebody very experienced who has worked through lots of different markets.”
12. Consider buying with friends or family
Nate and I met as students at Centaurus High School in Lafayette. Since graduating, we’ve remained good friends—we share an apartment, and we both work as personal trainers and staff at a local gym. We spend almost every day together, so it was easy to venture into homeownership. We wanted to be building wealth instead of paying rent, but we needed some help to navigate a tricky market we knew little about.
We began our search in the summer of 2021, and we focused on buying something older that we could put some sweat equity into, mostly in places near our hometown, like Broomfield and Westminster. Eight times, we were either outbid or couldn’t meet an appraisal gap.
We looked alone at first but eventually started engaging with agents. A lot of people shied away from working with us because we’re 19 and 20 years old. But our agent, Chris Hurwitz of Compass, had confidence in us, wrote up offers that we asked for, and taught us along the way. He also opened our eyes to the possibility of buying a new build, which meant not having to fight for a home or pay $50,000 over asking.
In March, we went under contract on a home in Frederick, in a planned community called Hidden Creek. By next month, we should be settling in. Sure, it’s a bit farther out than we wanted, and the amenities that often come with living in an older neighborhood don’t yet exist. But we’re patient. We remember that Erie, which our parents call home, had once been new. And, for anyone who’s wondering, there’ll be a coin toss to decide who gets the main bedroom. —Shane Ditlow and Nate Uribes, as told to Philip Clapham
13. Be creative when using your digital resources
Everyone knows about Zillow and Redfin. Up your house-hunting game with these three lesser-known apps as you look to score your next home.
If you’ve ever been on a walk and noticed a for-sale sign in a yard, chances are you stopped to look up the address on Google. Rather than having to type in the address, try Homesnap, which identifies the property through a photo and provides details from local listing services and/or public records.
Movoto Real Estate by OJO
For those who love very specific numbers, Movoto Real Estate updates you on how long a property has been on the market—down to the minute. Additionally, each listing gives you the distance to the nearest Starbucks or park and scores the neighborhood on its kid-, pooch-, and foodie-friendliness.
Browsing listings can be fun, but if you’re not ready to dive deep into your financials, you’re probably wasting your time. Rocket Homes allows you to search listings, prepare a mortgage application, and track your credit without having an impact on your score.
(Read more: How a Local Fund is Helping Black Families Buy Homes)