How Much Money Do You Need to Make to Buy a House in Denver?
If you’re looking to buy a home in the Denver metro area, one of the most important questions you might ask is, “How much money do I need to make?” Given the current market conditions, especially after significant changes in recent years, the answer may be different than expected. Here’s a breakdown of what you need to know regarding income and qualifying for a home in the Denver area.
The Denver Housing Market: Income and Affordability
Denver’s housing market has seen considerable growth over the past few years, with home prices nearly doubling since the onset of the COVID-19 pandemic. This rapid increase, combined with current interest rates, has raised the minimum income required to afford a home in the area. Today, you’ll likely need to be making around $60,000 or more per year to qualify for an entry-level home in Denver or Colorado Springs.
It’s essential to remember that this number is a general estimate and can vary based on factors like your credit score, down payment amount, and the specific neighborhood you’re looking at. Housing prices and expenses can differ significantly within the Denver metro area, so keep that in mind as you explore your options.
How Lenders Calculate Income for Loan Qualification
When determining whether you qualify for a home loan, lenders typically use your gross income, which is your total income before taxes. This is important because many people focus on their take-home pay, but lenders use the higher, pre-tax number when considering your ability to afford a mortgage.
For example, if you make $60,000 a year, that breaks down to about $5,000 a month in gross income. From there, lenders will typically use the 50% rule of thumb, meaning no more than 50% of your income should go toward debts, including your future mortgage payment. This is known as the debt-to-income (DTI) ratio, and it’s a crucial part of the qualification process.
The Debt-to-Income Ratio: Understanding Your Budget
Let’s walk through how this works:
- If you make $60,000 a year, your monthly gross income is $5,000.
- With the 50% DTI rule, your total debt payments (including your mortgage, car payments, and any other obligations) should not exceed $2,500 per month.
- If you have no other debt, you could potentially qualify for a $2,500 mortgage payment.
- However, if you have other debts, like a $500 car payment, your available budget for a mortgage would drop to $2,000.
Right now, the average first-time homebuyer in Colorado is spending between $2,500 and $3,000 per month on their mortgage. This gives you a ballpark figure to work with when calculating how much home you can afford based on your income.
What Does This Mean for You?
Buying a home in Denver today requires careful planning, especially when it comes to your income and debts. If your household income is around $60,000 a year or more, and you don’t have significant other debts, you’re in a good position to qualify for an entry-level home in the area. Keep in mind that factors like your down payment and credit score can impact your loan approval and the amount you can borrow.
Getting Ready to Buy in Denver
Navigating the Denver housing market might feel challenging, but knowing how much income you need can help you prepare for the home buying process. If you’re unsure whether you qualify or if you want to explore options to make your dream of homeownership a reality, talking to a local mortgage expert can make all the difference.
At Colorado Lending Team, we’re here to help you understand your options and guide you through every step of the way. Contact us today to see how we can help you make homeownership in Denver a reality!
