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This guide will help you understand what is involved in buying a home. Home buying can be overwhelming, especially as a first time home owner. Reading through this guide and selecting a qualified realtor, preferably one that is local to the area will help a lot.
The first step is to speak with a local mortgage officer to determine a purchase price, amount of down payment needed, monthly payment estimate and amount of closing costs. This can be an appointment or initially a phone interview. The lender will give you a pre-approval letter that states the purchase price you are approved for and what additional items are needed (taxes, W-2’s, bank statements, etc)
Once you understand your finances and what you are pre-approved for, your realtor will show you properties within your price range.
Once a property is selected, it’s time to write an offer. There are generally 4 items needed (one is optional).
1. Offer (Contract with the Price and Terms you agree to.)
2. Pre-Approval Lender Letter (A quick letter from a Preferred Lender.)
3. Earnest Money Check (Usually 1 percent of the Purchase Price.)
4. Cover Letter (Optional – tell the seller about you and why you love the house)
The Seller will review our offer and has three options; 1. Accept 2. Reject 3. Counter Offer. In case they counter offer, the contract and terms will be negotiated until a mutual acceptance of the terms is agreed upon.
Almost there!! You don’t officially own the home yet, but I will guide you through the important dates and deadlines until closing.
Calendar of Events
Your realtor should create a calendar that details all of the deadlines for the terms of the Contract. Some key dates are as follows:
- Inspection
- Appraisal
- Review of HOA documents (rules & regs, financials, budget, meeting minutes)
- Title Report
- Due-Diligence Documents
Before closing you will have a chance to review your loan and title documents that you will be signing at the closing table. This is also a good time to call the utility companies and get everything changed over to be in your name. I will provide you with the correct companies and phone numbers for your new home.
On the day before or day of Closing I will schedule a walk through with you to preview the home one last time. We do this to make sure all items agreed upon in the contract are maintained and nothing in or around the home have been majorly altered.
CONGRATULATIONS! This is the day you will become the official owner of your new home. You will want to be sure to bring a photo ID, checkbook and the appropriate down payment (in the form of: Wire or Cashier’s Check). Possession of the home will be designated in the Contract. Most often this is the same day as the Closing Date.
Frequently Asked Questions (FAQ)
How much cash do I need for closing costs ?
Typically 2.5% of the loan amount but can change depending on the interest rate you choose. The higher the interest rate, the lower the closing costs and visa versa.
What is a discount point or an origination fee ?
This is typically a fee charged by the lender to facilitate the loan and usually equals 1% of the loan amount. This can vary from lender to lender.
What items are included on my monthly mortgage payment ?
There are 4 different categories that make up your mortgage payment, PITI
Principle – the payment that reduces the amount of the loan
Interest – the bank’s profit margin – more is paid up front
Taxes – collected monthly and then paid by the lender, this number can change
Insurance – hazard insurance which is also collected by the lender to make sure the property is covered in case of damage
What is a GFE or Good Faith Estimate ?
Every lender you speak with should give you a good faith estimate sheet showing your approval amount, an estimate of closing cost, interest rate and total monthly payment.
How long does it take to close on a typical home purchase ?
Most transactions take 30 to 45 days to close when the buyer is obtaining a new loan. Some sellers may want to close sooner or later – that information is usually gathered prior to writing the purchase contract.
What other costs can I expect to incur in addition to the loan closing costs ?
You will need to pay for an inspection ($200 to $400) an appraisal ($300 to $450) and any other inspections you deem necessary. (electrician, HVAC contractor, etc)
What is a Non Warrantable condo ?
In order for a condo to have a warrantable status, it must meet two requirements. If the condo complex is deemed non-warrantable, some lenders may not loan on that particular unit.
1. Must be a HUD approved project with approval of the HOA financials, reserves etc.
2. Must have at least 51% owner occupancy ratio
What is Title Insurance ?
Title insurance is an insurance policy given to the buyer after closing ensuring clear title (with exceptions) that guarantees ownership and possession, etc. During the contract phase, a preliminary title commitment is given to the buyer to review and then a final policy is issued after closing.
What is an escrow account ?
An escrow account is created by your lender to hold money for payment of property taxes and hazard insurance on the home. The lender is concerned that these two items are paid, so they collect that amount in your monthly payment and then disperse at the appropriate time.
Who pays the real estate broker ?
Typically the seller has contracted a set amount with the listing agent who then shares that commission with the buyer’s agent who brings a ready, willing and able buyer. Usually 3% of the gross purchase price. The buyer’s agent is paid indirectly by you purchasing a home.
What is earnest money ?
Just like it sounds, earnest money shows the seller you are serious about the purchase. Typically 1% of the purchase price and is payable to a title company or listing company. Typically due 2 or 3 days after a full contract has been signed.
If I terminate a contract, will I get my earnest money back ?
The Colorado State purchase contract has numerous “outs” for the buyer that allow for the buyer to terminate and have earnest money returned but it is never a guarantee.
What if I find a "For Sale By Owner" ?
Your realtor will contact an unrepresented seller on your behalf and can negotiate a transaction. Typically the seller is willing to pay my commission or I may ask the buyer to help pay my fee.
What is an acceleration clause ?
This is a paragraph used in a multiple offer scenario which is placed in the “Additional Provisions” section of the Contract to Buy and Sell. It states the buyer will beat any other buyer’s offer by a set amount ($1,000 for example) that has a cap determined by the buyer. A great tactic to beat out other offers and also saves you $$!
