- One of the first items to tackle when buying a home is talk to a lender to get a rate quote as well as a preliminary idea of what you might be able to afford, based on a variety of factors like income, debt, credit score, employment history, military service qualification, etc. After you find a lender you trust and they open a loan application with you, you’ll send them more financial documents (ex. W-2s, tax returns, pay stubs, etc.) to begin working toward obtaining a pre-approval. Usually, buyers focus on their desired monthly payment, then look for homes with their agent for that particular price range.
- Depending on the market, how much $ you have for a down payment (and a number of other factors) your Realtor will ultimately help you search (and in a seller’s market, *compete) for a home that fits your needs. Since we’re in a competitive market, it’s even more important for buyers to be further along in the loan application process before seriously looking at homes. Reason for this is that any offer may need to be presented with a lender letter within 24-48 hours after the home is listed.
- Every deal is different. Your Realtor can help you navigate any issues that may pop up! The key for buyers is to manage risk by doing as much upfront due diligence as possible, hiring inspectors as necessary to see if the home is up to your standards and whether or not you plan to address any repairs.
- After you go under contract, there are a number of items to take care of leading up to the closing. In Colorado, we’re a ‘close-at-the-table’ state; as such, we normally work with title companies and lenders to get deals closed. A lawyer is not normally required unless there are special circumstances outside the Real Estate Commission-approved contract. Usually, deals close in 30-45 days.
Buying A Home? – There is a lot to Consider!
STEP 1: Make a decision to buy
You are ready to purchase a home. Now, you must identify what you want and why. Below are a few questions to help answer the “why” part of the equation.
1. What are your future plans? Do you anticipate starting a family? Perhaps you expect your family expand, or maybe you are scaling down and the kids are moving out to attend college. Whatever your future goals, it is wise to clearly articulate these goals so that you can identify the house that will meet your particular needs.
2. Do you have enough cash for a down payment? Identify how much you can afford for a down payment.
3. Can you afford your desired home? This is an important question that only you can answer. Will your current spending habits allow you to live comfortably with a new mortgage, or will this added cost create a burden down the road?
STEP 2: Get Organized
Now it’s time to gather key information and to begin educating yourself on the process.
First, check your credit rating to ensure that nothing is outstanding which may prevent you from obtaining a mortgage. This can be done by contacting one of the three largest credit bureaus: Trans Union Corp., Equifax, or Experian. You are entitled to receive a copy of your credit report for from each credit bureau at www.annualcreditreport.com. This is the only true free credit report site.
Next, make sure that you have the loan capability for a mortgage. Contact a loan officer and get pre-approved. If you have a Realtor, they often will have recommendations of mortgage lenders that have good rates, provide great customer service, and have a track record of keeping things moving so your closing happens on time. Pre-approval will help you identify the loan that you can qualify for, and will help narrow your home search to an affordable target price range.
For pre-approval, you will need to know:
- How much cash you have available for a down payment
- How much cash you have available for closing costs
- Your current income
- Your job status
- Your estimated assets
- Your estimated debts
STEP 3: Time to Get a Loan
You will have the choice to get a loan from the company who gave you the pre-approval or to shop elsewhere. This can be done through a lender or mortgage broker. A mortgage broker acts as a middleman between the borrower (buyer) and the lender.
It is wise to examine the different types of available loans, and to seek counsel from financial professionals who are informed of the latest changes in lending laws and regulations. The key is to find the best rate and to be well educated on your decision. A good lender or mortgage broker will help educate you on the process.
STEP 4: Shop for a Home
When purchasing a home, you often will not have to pay for an agent. This is usually the seller’s responsibility. It is wise to let an experienced agent do much of the legwork for you! Always choose a reputable real estate firm and work with a Realtor® if you can.
When evaluating a home that you like, have a list of questions ready. Your questions might include the following: 1) what is the school district, 2) what taxes must be paid, 3) why is the owner selling, 4) what is the quality of the neighborhood, and 5) what are local resident’s opinions of the neighborhood?
Other items to consider: 1) condition of the house, 2) age of mechanical systems (heat, plumbing, and air conditioning), 3) needed house repairs or replacements, 4) builder reputation, and 5) when the house was built (for lead concerns).
It’s a good idea to research the neighborhood. Walking the neighborhood is usually a good way to learn whether or not the atmosphere fits your needs. When you find the right neighborhood and home, it’s time to prepare an offer.
STEP 5: Preparing Your Offer
This is where an agent’s value becomes clear. You want to put in an offer on the home, but you don’t want to pay too much. An experienced agent will be able to determine a fair offer price and will negotiate with the seller and seller’s agent on your behalf. Before you prepare to submit an offer, though, identify the maximum amount you can afford. This discipline will prevent you from getting overly excited and paying too much for the home.
So, you’ve prepared an offer that’s within your comfortable price range. Always be sure to include the letter of pre-approval from your lender, particularly if there are multiple offers on the property. This will strengthen your offer in the eyes of the seller.
If you have contingencies or conditions (ex. contingent upon the sale of your existing home), attach this information to the offer. Be ready to include an earnest money deposit with the offer, which will be part of the down payment toward your home on the loan if the deal closes.
The seller may accept, reject, or counter your offer within hours or days, depending on the quality of your offer and the seller's desire to sell. You can then accept the counteroffer or "counter the counter."
Once the seller accepts, a third party (a lawyer, an escrow, or title company) completes the transaction with your lender. This is where it pays to work with a Realtor® who has an established team in place to ensure that “good funds” are available and title transfers without any problems.
STEP 6: Close the Deal
Speak with an accountant if your closing date is near the end of the year. Your accountant may be able to identify future tax savings with owning a home and may recommend a closing date that can benefit your tax situation.
Work with your mortgage broker to estimate your closing costs to avoid any major surprises. Costs range anywhere between 2-5 percent of the purchase price of the home. Since these costs are negotiable between the buyer and seller, actual costs are calculated on a case-by-case basis.
Do a walk through to ensure the seller has completed any requested repairs specified in the purchase contract agreement, as well as completed any other contingencies found in the agreement.
It’s now time to close the deal! Closing day is when the seller officially signs the house over to you. From the day of signing the paperwork, it could take anywhere from 10 to 100 days to move into your new home, depending on the complications and/or agreement of the deal.
Do you have more questions about the buying process? Or are you ready to
purchase a home in the Denver area? Contact me at firstname.lastname@example.org or 303.596.8886 today!
It’s tempting to run out and look and houses, yet it’s smarter to call the lender first and see what you can afford. After finding a lender you trust, work with a Realtor who knows the local market and can ensure that you don’t overpay! Also your Realtor will help you navigate any special issues that may arise during the contract period.
Are you in the market to buy? If so, please contact us at 303-345-8715.
Keelan McCamey, Realtor