A friend finds a home, puts in an offer, and suddenly everyone is talking about mortgage interest rates and closing dates. This can make purchasing your first home seem much easier than it actually is. Then you start shopping around for properties, talking to lenders, and calculating what cash you actually have available. That's when the reality hits. If you are applying for a first time home buyer loan in Colorado program, don't start by asking what is the most expensive home you can afford. Start by asking what you can actually afford without feeling the financial squeeze on every payday. There is a distinction, and a pretty important one to boot. You may be eligible for a mortgage but not comfortable with the payments. Taking your financial house in order while you are applying for the mortgage will give you the control you need (even if it means waiting a bit to put in that offer).

Calculate Your Actual Budget, Not Only Mortgage Payment

Here's a quick little exercise: Take a look at your bank statements over the last two or three months. And I don't mean just your rent and your major bills. Look at all the little expenses too. Take out, gas, internet, shopping, those subscriptions you no longer remember subscribing to, everything. Now, think about what that looks like with a mortgage added in the mix. Would there be anything left at the end of the month? Your total housing cost should include property taxes, homeowners insurance, and maybe even HOA fees in addition to the mortgage itself. Repairs and utilities need to be included as well. The bank might be willing to lend you a certain amount of money, but that doesn't mean you have to blow the whole thing. I see so many people so focused on getting approved that they forget they still have a whole other life to pay for. Leave yourself a little wiggle room. A house needs to be within reach on an average Tuesday.

Saving for a House Takes More Than a Down Payment

The down payment is the easy part, so that's what most buyers focus on. But what do you do when you get to closing and realize you'll still have several thousand dollars' worth of other costs? Closing costs depend on the deal but may include appraisal, lender, and title fees, and prepaid taxes and insurance. Moving comes next. Do you need a new refrigerator? Did the previous owner take the curtains? Does it just need a few patches? Not exciting, but these costs can add up to a lot of savings. Open an account specifically for your home purchase and determine how much you can put into it each month. It doesn't have to be a lot when you first start saving. What's most important is consistency. Colorado buyers should also look into down payment assistance options, some of which have income and purchase price restrictions, so get current numbers before you start making your savings plan.

Your Credit Score Deserves Attention Before You Apply

Don't wait until the mortgage lender checks your credit and notices there's a problem. Check your credit reports and examine them closely. An incorrect balance or an account that isn't yours can cause needless problems. If you carry credit card balances, keep making small payments to reduce them while also paying your bills on time. You don't need to pay off everything in a week, and rushing can cause problems (like using up your savings to pay off a credit card). Try to improve your overall situation without leaving yourself broke. Another tip: Don't open new credit lines until you've moved in. That 10 percent off store card may be tempting, but applying for credit elsewhere only complicates things. Financing a car just before buying a house is a bigger problem (lenders will review your credit and your financial situation prior to settlement). Keeping your file stable simplifies the process.

Existing Debt Can Affect Your Qualification

Student loans, auto loans, and credit card debt aren't necessarily a deal breaker for you buying a home. It's a matter of how the payments work with your income. Most mortgage lenders will ask to see your debt-to-income ratio, which compares what you pay on debt to your total gross monthly income. If you're already dedicating a large chunk of your paycheck to debt, you may find you have less room for a mortgage than you expected. But take the time to look at your debts one by one. Which ones are paid on a fixed schedule? Which could be paid down in the coming months? Is it worth scrambling to pay down every oddball debt you have so that your total looks better, or do you also need cash left over? Think also about where you work. If you earn income one way now but are considering a different road (starting your own business, for example), check into the documentation you'll need from lenders. Every situation has its own requirements, and it's better to find out early rather than scramble to assemble that paperwork when you're already under contract.

Look Into Colorado's First-Time Homebuyer Programs

There isn't one single mortgage for everyone, and it's not always a good idea to take the first product a lender recommends. Conventional mortgages might fit for buyers with better credit and other financial situations. FHA options can come with lower down payment requirements in many cases. VA loans could be available to veterans, and qualifying service members and USDA loans might work for eligible buyers purchasing in qualifying areas. Colorado has a handful of CHFA programs, through the Colorado Housing and Finance Authority, which could be an option for qualified buyers. There's more to know about these programs. Some have income limits, ceilings on what homes you can buy, require homebuyer education, or limit where you can use certain lender programs. Some assistance comes with different terms that will tell you whether the money is a grant, a second loan, or something else. Use this as a starting point, but be sure to learn all the facts before determining what options make the most sense.

Don't Spend Every Last Dollar Getting the Keys

This is one of those blunders that you don't realize until you've moved in and lived in the house for a while. You spend your savings on the house, get the keys, and then realize you have to charge the repair to your credit card. This has become all too common. Owners need maintenance, even if their homes look fine during the inspection. A leaky faucet may be a small price to pay. A broken-down furnace or water heater, however, is something else entirely. Take a close look at the inspection report and inquire about anything you aren't sure of prior to settlement. You may not want to buy a home with an older roof, but you should be aware of what you are buying. Colorado mortgage lenders can help you understand your overall homebuying costs so you can plan your budget more effectively. A reserve fund apart from your down payment is advantageous, if not necessary. A few months' worth of living expenses (for some that's six months, for others a little more) can make a big difference down the road. Remember, you'll still have groceries, day-to-day expenses, insurance, and a myriad of other overhead costs, all of which the house's mortgage payment now piggybacks onto.