How to Buy a House in Montana: A Homebuyer’s Guide

Consider contacting a real estate professional if you're seeking the best area in Montana to buy a home. Real estate agents can guide you through the process of becoming a homeowner.

Ask your family and friends to recommend real estate agents. Once you’ve narrowed your choices, ask for references from recent customers. In general, you want a real estate agent who:

• Knows the local housing market
• Has a history of being trustworthy
• Has a network of connections
• Conveys ideas clearly

Ultimately, your priorities will determine which real estate agent is best for you.

The cost of living can differ depending on where you reside in Montana. For instance, you will spend up to 2% more on essentials like rent, food and utilities in Missoula than in Bozeman.

When looking for the cheapest places to buy a house in Montana, remember that the cost of living in a given area will affect your budget. When picking the ideal location, take into account living expenses, such as:

• Food
• Utilities
• Healthcare
• Transportation
• Entertainment
• Education

Use MoneyGeek’s cost of living calculator to learn how the cost of living in Montana differs based on where you live.

Montana's cost of living is $1,668 per month, 1.16 times lower than the national average, making it a comparatively affordable state. Butte, Billings and Missoula are among the lowest-cost cities in the state, according to Livingcost.org.

City, suburban and rural living all have advantages and disadvantages. For instance, people who reside in suburban or non-metropolitan areas can own a home for less money but may have less access to facilities like hospitals, malls and other amenities.

Homebuyers in Montana have access to various mortgage options. Different loan types have different terms, conditions, rates and restrictions.

Each lender will have different eligibility requirements. Check your employment history, credit score, DTI ratio and gross monthly income against lender requirements to find the best matches.

The average interest rates in Montana are listed below by mortgage type:

• Conventional home loans (30-Year Fixed Rate): 6.9%
• VA home loans (30-Year Fixed Rate): 6.4 %
• USDA home loans: 3.3%
• FHA home loans (30-Year Fixed Rate): 5.5%

The average APR can change based on the lender and your area, so keep that in mind.

You’ll need to determine how much of a mortgage you can afford before purchasing a property. Comparing rates will help you decide between traditional home loans and government-backed mortgages, provided you are eligible.

To better understand the different costs of your mortgage — such as the interest, principal, property taxes and other expenses — use MoneyGeek's mortgage calculator. Additionally, you can compare interest rates for conventional and FHA mortgages to see which is the best fit for your situation.

Once you receive estimates from lenders, evaluate the mortgage alternatives based on upfront fees, APR rates, limits and other factors. Pick the mortgage that best matches your requirements and financial situation.

Each lender has unique conditions, restrictions and requirements. When evaluating your mortgage application, mortgage lenders frequently consider the following aspects:

• Credit Score: Although not all kinds of loans require a credit score, lenders typically favor borrowers with at least fair credit standing.
• Gross income: Your ability to pay back the mortgage is typically reflected by your income.
• Down Payment: The amount you can pay as a down payment indicates to the lender whether or not you are a risky borrower.
• DTI Limits: Your DTI ratio reveals how much of your income goes to pay off debt.

Your down payment may differ depending on the type of mortgage you choose. A 20% down payment is typical for a conventional loan. For qualifying USDA and VA borrowers, no down payment is required. Borrowers must put down a minimum of 3.5% on FHA loans.

Once you know which loans you are eligible for, you may calculate your down payment percentage. Know that the size of your down payment will impact your monthly expenses. Typically, a larger down payment translates to lower monthly payments and vice versa.

Most conventional home loans with less than 20% down require the borrower to purchase mortgage insurance or PMI. If the borrower fails to pay the loan, PMI safeguards the lender.

• Conventional loans: If the down payment is less than 20%, PMI is necessary. Rates vary based on down payment and credit score.
• FHA loans: Although PMI is not necessary, you will probably still have to pay an upfront mortgage insurance payment.
• VA loans: No PMI is necessary.
• USDA loans: PMI is not necessary, but you may need to pay a guarantee fee.

A 20% down payment can be difficult for many homebuyers to save. Fortunately, Montana offers several down payment assistance programs to help reduce the upfront cash homebuyers need to shell out. These include:

• Bond Advantage Down Payment Assistance Program: Available for up to 5% of the sales price or a maximum of $15,000 and can be used for a down payment and closing cost assistance.
• MBOH Plus 0% Deferred Down Payment Assistance Program: Places a second mortgage lien of up to $15,000 on the property.
• District VI Human Resources Development Council: Provides homeownership assistance in Golden Valley, Fergus, Judith Basin, Petroleum, Wheatland and Musselshell Counties.

You can look into other home aid loans if these don't suit your needs. For example, Montana offers supplementary programs for first-time home buyers.

Lenders typically need your financial and personal details to verify your income, credit history and debt-to-income ratio. You may also be asked to submit extra supporting documentation to demonstrate your eligibility, depending on the type of mortgage.

In Montana, you typically need to submit the following to apply for a mortgage:

• Social Security number
• W-2 forms
• Photo ID
• Tax returns
• Bank account statements
• Pay stubs
• Investment statements
• Other mortgage statements

Find out what your lender requires so you can quickly acquire the necessary paperwork. If a document is unavailable, you can also ask about alternatives.

When preparing to purchase a home, being pre-approved for a mortgage is an important step. Pre-approval for a mortgage could take up to 10 days, though the length of time will depend on the lender. You will receive a letter outlining your borrowing capacity once you are pre-approved.

You should only request pre-approval when you are prepared to buy a property because pre-approval letters often have a validity of 60 to 90 days. If your pre-approval expires, you must file for a new one.

The lender’s pre-approval letter tells you how much money you can borrow. Additionally, it shows that you're a serious home buyer with the resources necessary to obtain a mortgage. There is no cap on the number of pre-approval letters you can seek, but lenders run hard credit checks that may lower your credit score.

Pre-approval letters frequently include the following details:

• Loan amount cap
• Interest rate
• Loan amount
• Loan period
• Monthly payment

A pre-approval letter's contents, however, differ depending on the lender. Although some lenders may utilize the data you provided, others might request additional documentation.

Remember, pre-approval letters are good for 60 to 90 days. Take advantage of this time to enhance your profile and consult with your lender about the terms that would be most beneficial to you.

Although it adds to the upfront cost, hiring a certified home inspector can help you save big in the long run. Ask your real estate agent, family and friends for recommendations.

According to the International Association of Certified Home Inspectors, typical home inspections include a written report outlining the status of the following:

• Exterior
• Roof
• Foundation, basement and crawlspace
• Cooling
• Heating
• Fireplace
• Plumbing
• Electrical
• Ventilation, insulation and the attic
• Windows, doors and interiors

Additionally, you can opt for specialized home inspections that look at a house's foundation, pest issues, mold and sewage system.

Montana does not require home inspections, but some counties or cities may insist you get the house inspected before you buy it. However, buyers should conduct inspections to ensure that the home has no life-threatening safety or structural issues. A professional inspector will help identify any problem areas and provide a detailed report.

The mortgage lender often conducts a house appraisal to confirm the property’s value before it funds the purchase. To assess the home's actual value, which may differ from the listing price, a professional appraiser completes an inspection of the property. An appraisal assists in preventing overborrowing, which can put the lender in danger of losing money if the borrower defaults.

Appraisers will consider market trends in addition to a home's qualities and take into account the pricing of comparable area properties.

Before signing any documents, review them thoroughly. You will typically need to sign the following:

• Final loan application: Verifies that the information on your original loan application is accurate. Inform the lender if your financial situation changes at any time.
• Property deed: Conveys ownership to the buyer and contains all relevant information about the property.
• Mortgage note: Legally obligates you to make mortgage payments and contains information about the principal loan amount, interest rate and other terms.
• Final disclosure: Outlines the conditions of your loan.

Pay attention to the fine print before you sign any documents to avoid overlooking crucial details that can end up costing you in the long run. If you come across any unfamiliar terms, speak with an expert or your lender.

Closing expenses typically range from 2–5% of the purchase cost, depending on your area, the lender and other factors. These expenses include:

• Origination fee: Varies based on the lender but is often a modest portion of the loan amount.
• Title search charges: Costs associated with the title search to confirm that the property truly belongs to you.
• Escrow: Funds for real estate taxes, homeowners insurance, mortgage insurance and yearly funding fees are kept in this account.
• Recording fee: Some government organizations impose a recording fee for documents that list a borrower's ownership stake in a property and any potential liens against it.

This is not a complete list since the exact closing costs will also depend on the lender, but it should provide a good idea of what to expect.

You’ll need to identify your ideal location, calculate mortgage rates and assemble the required paperwork before buying a home. Additionally, you’ll need a pre-approval letter and a home inspection before closing the loan.

Being a homeowner entails various responsibilities, including setting aside money for an emergency fund and budgeting for expenses related to cleaning, fixing and maintaining the home's mechanical and electrical systems. Paying a larger down payment is an excellent strategy to ensure a lower monthly rate.