How to Buy a House in Montana: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration and planning. In Montana, the average home value is $470,084, which is higher than the national average of $362,481. This difference can influence how prospective homebuyers approach their financial planning and budgeting.

Understanding down payment assistance programs, mortgage types and state-specific regulations can ensure a smooth journey toward homeownership in the Treasure State. MoneyGeek has compiled essential pointers to help you navigate the homebuying process in Montana, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Montana for the second quarter of 2024 was 0.7%. The homeowner vacancy rate measures the percentage of vacant homes available for sale. This metric helps indicate the balance between housing supply and demand.

A stable vacancy rate, where homebuyers have some choice and flexibility, is typically around 2%. When the rate falls between 0.3% and 0.9%, it indicates a shortage of available homes. Montana's homeowner vacancy rate of 0.7% means increased competition and potentially higher prices, making it essential to act quickly when finding a suitable property.

Before buying a house in Montana, examine your financial and credit history closely. A strong financial profile increases your chances of getting approved when applying for a mortgage.

Your credit score plays a pivotal role in determining the mortgage loans and interest rates you qualify for. A higher score increases your chances of securing favorable rates. According to Experian, the average credit score in Montana is 732.

If your credit score falls within the poor range (between 300 and 579 on the FICO scale), obtaining mortgage approval may be challenging. Check the table below to see which mortgage type aligns with the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) is a key metric lenders use to evaluate how much of your monthly income is committed to debt payments. This insight helps them determine the mortgage debt you can responsibly manage. According to Experian, the average mortgage debt in Montana reached $234,646 in the third quarter of 2023. This figure highlights the additional financial responsibility homeowners in the state are taking on.

Your DTI factors in monthly debt payments, including your mortgage, credit cards, auto loans, student loans and other personal debts. Use our debt-to-income ratio calculator below to view your front-end DTI, back-end DTI and total monthly debt payments. The front-end DTI focuses on housing-related expenses, while the back-end DTI encompasses all your monthly debt obligations.

Buying a house you can't afford can lead to financial strain and stress. To avoid this, consider using the 28% rule as a guideline. This rule suggests you should not spend more than 28% of your monthly income on your mortgage payment. This approach ensures that your housing expenses remain manageable and leaves room for other financial obligations.

According to the U.S. Bureau of Labor Statistics, the median annual income in Montana in April 2024 was $45,690. This translates to a gross monthly income of $3,808 before taxes. When applying the 28% rule, a reasonable monthly mortgage payment would be $1,066. This example illustrates how you can use your income to determine a comfortable mortgage payment.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Montana.

A down payment is an upfront payment made when purchasing a home, typically amounting to 20% of the home's price. This standard can be a significant hurdle for many buyers. In Montana, the average home value is $470,084, making a 20% down payment around $94,017. For homes above the average value, like $505,000, this rises to $101,000.

Fortunately, saving up for a 20% down payment isn't required. Many mortgage options allow for lower down payments. For example, VA loans offer a 0% down payment, while FHA loans require only 3.5%.

If you choose to put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly premium based on your credit score and down payment.

Montana offers several down payment assistance programs designed to make homeownership more accessible. These programs can provide the financial support needed to overcome initial barriers to buying a home. Refer to the table below to explore the available programs offered by Montana Housing.

When searching for the right location in Montana, consider several key factors, such as the average house price and proximity to family, friends, work or school. Access to public transportation, parks, restaurants and shopping centers should also influence your decision. These elements can significantly impact your daily life and satisfaction with your new home.

The cost of living is another critical aspect to consider when choosing a new home. According to the Missouri Economic Research and Information Center (MERIC), Montana's cost of living index for the first quarter of 2024 was 94.6, which is below the national average of 100. Here are some essential expenses to consider:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Montana and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Montana. Agents provide the advice you need, handle the paperwork and offer an expanded list of property options that you might not access on your own. They can also recommend other service providers like title companies and inspectors to assist in your homebuying process.

When finding a real estate agent, ensure you do your due diligence and interview agents with experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

You can also use the license holder search tool from the Montana Department of Labor and Industry to find or verify real estate agents in Montana.

Navigating the homebuying process in Montana involves finding the best mortgage you can afford. Options include conventional, jumbo, FHA, VA and USDA loans. You can select from 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Choosing the best financing option can enhance your chances of approval and save money in the long run.

Interest rates on mortgages change daily and are influenced by factors such as the type of mortgage, the lender and the economy. While interest rates are the cost of borrowing the principal loan amount, the annual percentage rate (APR) shows the true cost of borrowing by including interest and additional fees.

As of October 2024, the APR for a 30-year fixed conforming loan in Montana is 6.02%, while the APR for a 15-year fixed rate FHA loan is 7.73%. Check the table below to see the current mortgage rates in Montana by mortgage type.

Getting pre-approved for a mortgage in Montana is a strategic move for prospective homebuyers. It allows you to understand your budget more clearly and makes your offer more attractive to sellers. Lenders typically issue a mortgage pre-approval letter, which serves as a formal indication of your borrowing capacity. This letter is generally valid for 60 to 90 days, giving you a window to shop for homes with confidence.

To obtain a mortgage pre-approval, you will need to submit several documents, including:

• Proof of income, such as pay stubs or tax returns
• Credit history report
• Bank statements
• Identification, such as a driver's license or passport
• Employment verification

It's important to differentiate between mortgage pre-approval and prequalification. Pre-approval involves a thorough evaluation of your financial situation, including a credit check and verification of income, assets and debts. In contrast, prequalification is a preliminary assessment based on self-reported information, offering a rough estimate of how much you might be able to borrow.

Home inspections are highly recommended in the homebuying process in Montana because they provide a comprehensive assessment of a property's condition. Inspectors typically examine structural elements, electrical systems, plumbing, roofing and HVAC systems. An inspection report usually includes details on the condition of these areas and any necessary repairs. This information helps buyers understand potential issues and maintenance needs, which can influence their purchasing decision.

For instance, an inspection might reveal significant issues such as a faulty foundation or outdated electrical wiring. Such findings can impact the home's appraisal, potentially lowering its value. If the appraisal comes in lower than expected, it may affect financing options or necessitate renegotiating the purchase price. Additionally, buyers might decide to rescind their offer if the inspection results reveal problems that are too costly or complex to address, allowing them to avoid unforeseen expenses and complications.

The Montana Department of Labor and Industry regulates home inspections in Montana through the Board of Realty Regulation. Home inspectors must comply with state-established standards of practice and ethics, which define the scope of inspections and detail the components and systems to be examined.

If you're looking for a home inspector in Montana, ensure they are licensed. Consider what other clients have said by checking online reviews and asking for references. You can also verify their credentials using the Montana Department of Labor and Industry's registered home inspectors list.

Home appraisals determine a property's market value. This step ensures that buyers and lenders have a clear understanding of the property's worth. According to the 2023 Appraisal Survey from the National Association of Realtors, the median appraisal cost in 2023 was $500.

While both inspections and appraisals are part of the homebuying process, they serve different purposes. A home appraisal assesses the property's market value, while a home inspection evaluates its condition. Lenders require appraisals to confirm that the loan amount does not exceed the property's value, protecting their investment in the event of default.

Closing marks the final step in purchasing a home in Montana, where the transfer of ownership occurs and you receive the keys to your new property. Your lender must provide a closing disclosure document three days before the official closing. This document outlines the loan terms, projected monthly payments and closing costs. Plan a final walk-through with your real estate agent near closing day to ensure the property remains in the expected condition.

During closing day, you will review and complete numerous documents that finalize the purchase of your new home. Here are some of the key documents you will need to sign:

• Final loan application: This document confirms the terms of the mortgage loan, ensuring both parties agree on the financial details. It solidifies the commitment between you and your lender, setting the stage for the loan disbursement.
• Deed transfer: This legal document transfers property ownership from the seller to you, marking the official change in ownership. It is an essential step in becoming the legal owner of your new home.
• Promissory mortgage note: This note is a written promise to repay the mortgage loan under the agreed terms. It outlines the repayment schedule and interest rate, forming the basis of your financial obligation to the lender.
• Homeowners insurance: Homeowners insurance in Montana provides protection for your home against various risks such as fire, theft and natural disasters. In Montana, it can safeguard your investment by covering potential damages and liabilities.

When buying a home, closing costs are unavoidable expenses that come into play at the end of the transaction. In Montana, the average closing costs are $4,279, according to NAR. These costs encompass various fees, including:

• Appraisal fee: This fee covers the cost of having a professional appraiser assess the home's value.
• Title search and insurance fee: This fee ensures there are no legal claims against the property and provides insurance against future disputes.
• Escrow deposit: Funds held in escrow cover property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for future expenses, such as homeowner's insurance and property taxes.
• Other closing costs: Additional fees may include credit report fees, loan origination fees and recording fees.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Montana can also help you achieve homeownership faster.

Buying a house in Montana is a significant financial commitment that could last for years. We've answered some frequently asked questions about buying a house in the Treasure State to kickstart your homebuyer journey.