STEP 1: Decide to Buy
You are ready to purchase a home. Now, you must identify what you want, why you want it and if you are financially ready to purchase. Below are a few questions to help you dig into this:
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. Remember, you will need to have Earnest Money (typically around 1% of the value of the home) accessible to submit within 72 hours of your offer being accepted. This money is part of your down payment. If you are receiving down payment assistance, it may also be applied to your closing costs.
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 educate yourself on the home buying 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 and provide information to the lender to prove:
· 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: 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 probe into the following: school district, estimated taxes, reason owner is selling, and feel and amenities of the neighborhood.
Other items to consider are the condition of the house, age of mechanical systems (heat, plumbing, and air conditioning), needed house repairs or replacements, and when the house was built (for lead concerns).
It’s a good idea to research the neighborhood. Walking the neighborhood both during the week and on weekends 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: Prepare 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. 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, in Colorado that is usually a 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
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.
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.
You will complete an Inspection, create an Inspection Resolution, and have an Appraisal during this time. Do a Final Walk Thru at least a couple of days before closing to ensure the seller has completed any requested repairs specified in the Inspection Resolution, as well as completed any other contingencies found in the agreement.
Closing day is when the seller officially signs the house over to you. Possession often occurs the same day as Closing, but it is not unusual for the Sellers to ask for some time to move out. This is established via a Post Closing Occupancy Agreement, which is in addition to the Contract to Buy and Sell Real Estate. 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 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 Jen@AimRealtyCO.com or 303-596-8886.