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

The real estate market can be difficult to navigate for a seasoned homebuyer, let alone a first-time homebuyer. If you want to find the best place to buy a house in New Mexico, consider hiring a real estate agent. With their knowledge of local market conditions, they might be able to expedite your path to homeownership.

Consider asking for recommendations from your family and friends if you aren’t sure where to start. Once you have a short list of applicants, you should ask for references from recent clients. MoneyGeek also suggests choosing a real estate agent that meets the following criteria:

• Demonstrates knowledge about local and regional housing markets
• Has a reputation for reliability and honesty
• Verifiable license and experience
• Communicates clearly and quickly

Still, the ideal real estate agent for you will depend on your priorities and preferences when looking to buy a home.

The cost of living varies depending on where you live in New Mexico. According to MoneyGeek’s data, the cost of living in Las Cruces is less than in Albuquerque.

When looking for the cheapest places to buy a property in New Mexico, keep in mind that the cost of living in a specific area will impact your budget. To budget accordingly, you should consider the following expenses when choosing an area:

• Food
• Public transport
• Utilities
• Healthcare
• Education
• Entertainment

You can find out how the cost of living in various New Mexico cities varies by using MoneyGeek’s cost of living calculator.

Recent data from the Economic Research and Information Center suggests that it’s significantly less expensive to live in New Mexico than in other states. In comparison to the national index of 100, the cost of living in New Mexico is 90.1. You can cut costs even more by selecting a property in a more cost-effective neighborhood like Las Cruces or Alamogordo.

Though the cost of living in the suburbs is typically lower than in cities, residents may have limited access to public services like malls, hospitals and schools. To find the best home for you, you should choose a location that meets your preferences and budget.

Depending on the type of home loan you select, your mortgage rates may vary. In contrast to traditional loans, VA home loans, for instance, often have cheaper interest rates for those that qualify.

Your chosen lender, as well as features of your borrower profile, like your credit score, income and debt-to-income ratio, will also affect the rates.

The following are the current average mortgage rates for each loan type in New Mexico:

• Conventional home loans: 5.6–6.2%
• VA home loans: 5.7–6.0%
• USDA home loans: 1.0–3.5%
• FHA home loans: 6.1–6.3%

Rates regularly vary by lender and location, so it’s important to reach out to your chosen lender for more specific values.

Before buying a property, make sure you can afford your mortgage payment. To get the best deal, you should compare rates for all the mortgage options you qualify for since you can be eligible for more than one program (conventional home loans and government-backed mortgages).

MoneyGeek's mortgage calculator can help you estimate your monthly mortgage payment and break down the cost into interest, principal, property taxes and other fees. To determine which mortgage is ideal for your situation, you can also compare the interest rates for conventional and FHA loans.

After receiving an estimate, you can compare several mortgage options based on upfront costs, APR rates, limits and other criteria to determine which mortgage best suits your needs and financial condition.

Mortgage rates and terms, like your APR and loan amount, are significantly impacted by your credit score and financial history. Mortgage lenders will take into account the following factors when assessing your eligibility for a loan:

• Credit score: Compared to buyers with bad credit, people with strong credit can obtain lower APRs and larger loan amounts.
• Income: To determine your creditworthiness, mortgage lenders will consider your income. Some lenders may have a minimum income requirement in order to be eligible for a loan.
• Debt-to-income ratio (DTI): This shows how much of your income is used to pay off existing debts and indicates to lenders your capacity to repay a loan.
• Down payment: Lower monthly mortgage payments and better APRs are often available to buyers who pay larger amounts of money upfront.

Depending on the type of loan you're getting, some factors, such as a down payment, won't be required.

Your loan’s down payment is one of the most costly expenses you'll have to pay when purchasing a property. For conventional loans, lenders often prefer that buyers make a minimum down payment of 20%. However, there are low-down-payment mortgages available that allow you to obtain a loan with as little as a 3.5% down payment. Mortgages with no down payment are available through VA and USDA loans.

Keep in mind that you must meet specific requirements to be eligible for zero-down-payment mortgages. For instance, only individuals purchasing homes in qualifying rural areas are eligible for USDA home loans, which do not require a down payment.

Your down payment will also affect your interest rates and monthly payments, so the amount you put down is very important. By making a larger down payment, you’ll lower the cost of your monthly payments and your lender may even offer you a reduced interest rate.

Depending on the type of mortgage you choose, you may be required to pay mortgage insurance. Most conventional home loans require private mortgage insurance (PMI) for applicants that don’t make a 20% down payment. PMI protects the lender in the event a borrower defaults on their loan. Though PMI is not required for FHA loans, you may be required to make an upfront mortgage insurance payment. Similarly, USDA loans do not require mortgage insurance, but borrowers must pay a guarantee fee. No mortgage insurance or additional fees apply to VA loans.

If you have not owned a home in the past three years, you may be eligible for one of New Mexico’s down payment assistance programs. These programs assist first-time homebuyers who may not be able to make a sufficient down payment when applying for a home loan.

Some of the down payment assistance programs available in the state include:

• FirstHome and FirstDown: This is a mortgage loan for individuals or households who haven't bought a home in the last three years. It can be utilized as a first mortgage on its own or with MFA's FirstDown program, which offers down payment help.
• HomeNow: This is a second mortgage loan available to first-time homeowners and lower household incomes that helps cover the down payment and closing costs. The loan has a 0% interest rate and, if certain requirements are fulfilled, may be forgiven after ten years.

The U.S. Department of Housing and Urban Development also provides resources for more homebuyer programs in New Mexico.

To apply for a mortgage in New Mexico, you must submit the following documents so lenders can verify your personal and financial information, including your income and creditworthiness.

• Driver's license
• Social security number
• Latest pay stubs
• Three years of W-2s and tax returns
• Statements of bank accounts
• List of debts and credit cards

Depending on your situation and the lender's requirements, more documents might be needed. For example, those that are self-employed may be required to submit any statement of unpaid accounts as well as year-to-date profit and loss statements.

It’s essential to time your pre-approval to avoid negatively impacting your credit score, as each pre-approval application includes a hard credit check.

Typically, it can take up to ten days to receive approval. After you’re approved, your letter is only valid for 30 to 90 days, after which time you’ll have to reapply.

To avoid negatively impacting your credit score, you should only apply for pre-approval when you’re ready to buy a home.

When you submit your application, mortgage lenders will run a hard credit check to determine your eligibility, and then provide a pre-approval letter outlining the terms of your loan. The pre-approval letter confirms the lender's willingness to provide you with the stated loan amount.

Pre-approval letters can be obtained from several lenders. This will allow you to compare rates and terms. However, each lender will have a different pre-approval validity period, usually between 60 and 90 days. Also, although you aren’t limited to the number of pre-approvals you can obtain, a hard credit pull is done each time which could harm your credit score. Because of this, we recommend limiting the number of times you apply for pre-approval.

Although the cost of an inspection typically falls to the borrower, hiring a licensed home inspector can result in significant savings over time. Generally, the following features are included in a typical home inspection:

• Exterior
• Roof
• Crawlspace, basement and foundation
• Cooling
• Heating
• Fireplace
• Plumbing
• Electrical
• Attic, insulation and ventilation
• Interiors, doors and windows

If you aren’t sure where to begin when looking for a qualified home inspector, you can always ask your real estate agent. Alternatively, if any family members or friends have recently purchased a home, they may be able to provide you with a sound recommendation.

New Mexico state law mandates that prior to transferring ownership, sellers must report any flaws or deficiencies known in the home. However, buyers must also perform their own checks to guarantee that the house has no potentially fatal structural faults. A thorough inspection should give the buyer the knowledge needed to proceed with purchasing the home or reconsider their offer. All home inspectors are required by law to be licensed in New Mexico. Remember, many counties and towns might have their own inspection laws. To learn about any home inspection requirements for your area, you should ask your real estate agent.

Before providing funding for the purchase of a house, the mortgage lender frequently conducts a home appraisal to verify the value of the property. A qualified appraiser must do a thorough evaluation of the property in order to determine the home's actual value, which may be different from the listing price.

The evaluation prevents overborrowing, which helps both the buyer and the lender; borrowers save money on interest and lenders are safeguarded in the event a borrower defaults on their loan.

In addition to taking into account the features of the home, appraisers also factor in current market trends. This means that the appraiser will consider the latest market values for comparable properties during the appraisal.

You must read and sign the loan documents only after you have thoroughly reviewed them. When closing your mortgage, you can expect to sign the following documents:

• Final loan application: By signing this, you attest that all the information included in your initial loan application is true. Any changes in your financial status, like a change in income, should be communicated to the lender.
• Mortgage note: This document outlines the principal loan amount, interest rate and other clauses and legally obligates you to make mortgage payments.
• Property deed: This document transfers ownership of the property to the buyer and includes all pertinent details.
• Final disclosure: The terms of your loan are described in this declaration.

Before you sign anything, be sure to read the fine print. If you don’t carefully review a document, you risk missing important details that could cost you more down the road. If you come across any new or unfamiliar terms, you should clarify these with your lender or an expert.

In addition to your mortgage, you can expect to pay for the following services and fees in closing costs:

• Title search charges: These are fees to verify that the property actually belongs to you.
• Origination fee: Although this fee varies depending on the lender, it is frequently a small percentage of the loan amount.
• Recording fee: Some government agencies charge a fee for recording documents that reveal a borrower's ownership interest in a property and any possible liens against it.
• Escrow: This account is used to hold money for annual funding fees, homeowners insurance, mortgage insurance and real estate taxes.

Because closure fees vary by lender, the closing fees you pay may be different.

Before you complete the purchasing process, make sure you've determined your preferred location, computed mortgage rates and gathered the necessary papers. A home inspection and appraisal should have been completed. You should also have received your pre-approval letter.

After following these steps and closing your mortgage, you’re now a homeowner! To be a successful homeowner, however, you must continue to responsibly manage your money and make monthly mortgage payments.

Being a homeowner requires a range of responsibilities, including budgeting for expenses associated with cleaning, repair and maintenance. You should also set aside money for an emergency fund.