Home Buying in Connecticut

Due to its location, Connecticut is the country's fourth-most densely populated state, with more than 3.6 million people in its 5,543 square-mile area. The housing market in Connecticut is tight. Prices here have appreciated 10 percent year-over-year to a median of $440,000, straining most buyers' budgets. The inventory of homes for sale is low, pitting buyers against one another for properties that are selling fast. One analysis of the situation says the area around Hartford, where many businesses are based, was in the top 10 of competitive real estate markets nationally. Some homes have been selling for $100,000 above the asking price just days after being listed.

Almost 60 percent of Connecticut's residences are single-family homes, and about 8 percent are in 3 or 4-unit buildings. Owner-occupied units comprise 60 percent of all housing.

A survey of homebuyers shows priorities include:

• Heating and cooling costs
• Commute distance
• Finding a traditional detached single-family home.

Most homes in Connecticut were built in the 1960s, making them at least 60 years old. Current data on home sales support the conclusion real estate near Hartford is currently a buyer's market. The median selling prices in Connecticut include:

• In Hartford, the median list price is $234,000, but the median selling price is $179,000.
• In Stamford, closer to New York, the median listing price is $750,000, but the median sold price is $769,000.
• In Waterbury, the median listing price is $259,000, but the median selling price is $247,000.
• Norwich listing prices are near $270,000, but the sales price is usually lower, about $240,000.

The towns in the southwest corner of Connecticut are sometimes called the Gold Coast or the Tri-State Area (encompassing Connecticut, New York, and New Jersey suburbs that send most employees to New York City). That includes Stamford, New Canaan, and Bridgeport, which are all on the commuter rail line. Most residents who commute spend 30 minutes in their vehicles, but those who go all the way to New York City commonly spend 1-2 hours commuting daily.

Along with significant commutes, residents spend a lot of money on utilities: $750 per month on average. That's nearly $150 above the national average.

When considering renting vs. owning a home in the Waterbury area, buying saves money in the long run if monthly payments are $1,800. Rent in this area averages $2,000 per month. After six years in a $300,000 home with a 20 percent downpayment, buying outstrips renting in affordability.

The average home in Connecticut sells after about a month. Prequalified buyers are in the best position to move quickly when the right place is found. Having a 10 to 20-percent down payment ready is key. To get a mortgage, you need a solid work history and a credit score above 600. (It can be a bit lower if you can make a 20 percent down payment.) Paying off loans and making prompt payments on debts improves your credit score, which is based in almost equal parts on your payment history and your income-to-debt ratio.

Connecticut property sellers are required by law to disclose information about a property's condition. This information isn't presented to a prospective buyer until an offer is made. Still, it's important for a buyer to proceed with a property inspection to determine the extent of any issues and the potential cost of rectifying problems. Sometimes, buyers will seek a renegotiation of the selling price or back out of the deal completely. Be sure your down payment is contingent upon the property passing inspection without significant defects.

Property taxes are an additional expense to consider when buying a home. Connecticut's average property tax bill is $6,200, for an effective tax rate of 2.16 percent (only New Jersey and Illinois are higher). These figures are skewed somewhat by high property values in the southwestern corner of the state, but smaller towns are feeling the pinch of high property taxes as well. The town of Hebron, southeast of Hartford, recently increased property taxes, resulting in an additional $556 per household. If property taxes are a significant issue, Windham County, in the northeast corner of the state, has the lowest, about $4,000 per residence.

Commute time, access to essential goods and services, and community vibe are all important considerations when buying a home. Very little of Connecticut is considered rural, but there are key differences between a country home and an urban existence.

Even in a buyer's market, there can be intense competition for well-priced homes in popular communities. If you're prequalified for a mortgage, have a significant down payment ready, and are prepared to negotiate your bidding price higher for the right property, you're likely to prevail.

Still, having a buyer's agent to counsel and guide you through the process can be beneficial. This realtor helps you find properties that most closely match your desired location and amenities. They help you develop a strategy for finding and purchasing a home, including writing your offer and negotiating the price.

The best buyer's agents have information ready on a home's price history, the pros and cons of the local area, and property taxes. In addition to helping with the initial offer, they will help hire an inspector, renegotiate the price if there are structural or systemic issues, and keep the closing process on track.

Buyer's agents now require a contract that discloses their role and payment. Instead of splitting a 5-6 percent commission with the seller's agent, they negotiate their own. The commission can be written into the purchase offer, making it part of the sale price.

The process of prequalifying for a mortgage should educate you about what you can afford. The median household income in Connecticut is $88,000. With that income and a $60,000 down payment, a buyer may qualify for a $340,000 mortgage (about a $400,000 home) in today's high-interest economy. You're limited to paying $3,000 or less per month for your mortgage. That's because mortgage lenders won't allow people to spend more than 30 percent of their income on mortgage payments.

Mortgage brokers and your local bank are both people to talk to when shopping for the best mortgage. They may extend special benefits to regular customers to get their mortgage business. Elsewhere, a mortgage broker has access to a wide variety of mortgage choices and can find a good deal for you. Your decision may hinge on your knowledge of and comfort level with the mortgage industry.

Your income-to-debt ratio and your history of on-time payments are crucial to qualifying for a mortgage. Your credit should be above 600 for government-backed loans, and above 640 for other mortgages. Start early by requesting free copies of your credit report from the major agencies (Experian, Equifax, and TransUnion) to correct any errors.

The federal interest rate sets the tone for individual mortgages, and right now, it's above 7 percent, the highest in years. This translates to higher payments for buyers. That's why many longtime homeowners don't want to sell now: they would end up getting a new mortgage at a higher rate and with higher payments.

If interest rates are low, fixed-rate mortgages can be a good deal, but they're less desirable if rates are high (rates rise and fall incrementally over periods of years). Adjustable-rate mortgages are riskier because the interest rate can change during the loan's term. Jumbo mortgages allow wealthy buyers to borrow more than the federal housing authority limit, about $766,000, in areas of particularly high property values.

Mortgage options include these government programs:

• The Connecticut Housing Finance Authority offers special mortgage programs for first-time homebuyers.
• FHA mortgages are tailored for first-time buyers with down payments of less than 5 percent.
• Rural properties may qualify for USDA loans, especially buyers with low incomes, but good credit scores.
• Military veterans and their surviving spouses may seek a Veterans Administration-underwritten VA loan. These mortgages do not require PMI and may be used multiple times by qualifying individuals.

Connecticut homeowners pay an average of $2,342 in homeowners insurance, a little less than the national average of $2,700. The state does not require such insurance, but mortgage companies often require insurance called PMI to protect their interest in the property.

A down payment of less than 20 percent triggers a requirement for PMI, or mortgage insurance, by lenders. The cost of PMI varies according to your credit score but is generally between $400 and $1,400 per month in addition to your mortgage payment.

Fences, barns, and garages must be specifically noted in the policy for coverage. Valuable personal possessions inside the home are unlikely to be covered by insurance unless an additional rider is written.

About 35,000 homes in northern Connecticut were constructed with substandard materials that resulted in the foundation crumbling. These were built from 1983 to 2015 using concrete with a naturally occurring pyrrhotite, which rusts and degrades the strength of the concrete. The homes affected are centered in Stafford Springs, where the concrete supplier was located. The state administers a $5 million fund designed to assist homeowners with the detection of any cracks or deterioration in their foundations. Property taxes may also be reduced as a result.

Police in Fairfield County warned residents and potential home buyers to beware of a scam operating in the area. In this case, some unscrupulous individuals identify vacant properties and pose as owners to take advantage of unsuspecting buyers. These people may take down payments for property they do not own, scamming the potential buyer out of funds. Always check property tax rolls against the names of people claiming to be the owners and make sure transactions are legal.