Buying a dream home isn’t just for millionaires, with some careful planning a dream home purchase can be achieved in a few key steps.
Depending on the market, a million-dollar home may seem like a mansion — but in places like Boulder and Denver neighborhoods such as Washington Park and Capitol Hill, that amount equals a starter home, or something small for the first-time homebuyer.
In the rest of the state, $1 million can purchase luxury living — think multiple bedrooms with amenities like a home theater, wine room, private gym or a pool.
“It depends on where the home is located,” said Elizabeth Million, vice-president of mortgage lending for Elevations Credit Union, headquartered in Boulder with branches in Longmont, Broomfield, Louisville and Lafayette. “A million would get you a dream house in many locations.”
According to Elevations Credit Union, Luxury homebuyers would want to take out a conforming or a jumbo loan, depending on the amount they want to borrow and the area where they plan to buy. In Boulder County, the conforming loan ceiling is $644,000, compared with $510,000 nationally. Any loan above that would be a jumbo loan and typically a higher rate than conforming rates due to a lack of investors in the secondary market.
Before taking on either type of loan, Million recommends doing some information gathering. Elevations Credit Union provides a wide range of loan types for luxury homes but urges customers to compare the credit union’s loan terms, rates and closing costs to that of other credit unions, banks and lenders.
“Make sure you’re talking to them and understanding the differences of what they offer,” Million said. “We try to teach our members in order to make an informed decision, you have to be educated.”
Million also recommends getting pre-approved for a loan to identify how much can be spent on a future home. Gather the required documents, such as income verification from W-2s and pay stubs (usually for the past two years) and, if self-employed, tax returns, as well as proof of liquid assets that can include savings and checking accounts, an IRA, 401(k), and any gifts with a letter from the gifter.
“It’s really being prepared ahead and gathering all the information the lender is going to need,” Million said.
Other tips include avoiding taking on additional credit, and if it’s necessary being sure to talk to the mortgage lender to further discuss debt-to-income ratio (the lender’s rule of thumb is a 38 to 43 percent ratio, or about $4,000 debt for every $10,000 in monthly income). Also, find out credit scores and be sure to pay down any existing debt
— a mortgage lender can pull a credit score and provide advice.
A larger loan also means a larger down payment and monthly mortgage, so be ready with the financing for a typical 10-, 20- or 30-year loan.
For a loan of $1 million, expect to put aside at least five to 10 percent of that amount, depending on the loan program, Million said, adding that she typically sees 20 percent down. With a five percent down payment, the homeowner can expect to pay mortgage insurance, she said.
Another consideration is deciding between an Adjustable-Rate Mortgage with a variable interest rate that periodically adjusts (ideal for short-term stays) or a Fixed-Rate Mortgage where the interest rate remains the same (ideal for predictable payments).
“Definitely affordability is something we have a concern for our members,” Million said. “At the end of the day you want to have a monthly payment you can sleep with.”
By Shelley Widhalm