Steps to Buying A
Home
Work with a Real Estate Professional
Purchasing real estate is a complex and major transaction that involves many details. An
experienced real estate agent can guide you through the process and help you avoid costly
mistakes. A Buyer's Agent is one who represents your needs in the transaction. Similarly,
the seller will have a Seller's Agent representing them.
Obtain Financial Pre-Approval
One of the biggest mistakes a home buyer can make is not getting pre-qualified or
pre-approved for a loan. A pre-qualified loan means a lender takes information from you
and has run an infile credit report. Based on your information and the credit report, they
can issue you a pre-qualification letter. A pre-approved loan is one in which you and the
lender have gone through all of the documentation, and a full credit report is ordered.
You benefit by having your loan pre-approved in several ways:
- You
eliminate any surprises about your ability to borrow by providing the lender with the
information up front. If there are questions about income, credit, or down payment, you
can address them and resolve them without the last minute panic that can occur if you have
not been pre-approved. Many times, credit reports are showing wrong information.
- You are
negotiating with the seller from a much stronger position. It shows the seller that you
not only can afford the home, but also there will be no surprises in your loan process
later. This can also be helpful if you find yourself in a situation where there are
multiple buyers bidding on the same property. The seller will be most apt to pick the
buyer who has confirmation that the loan will go through. One of the seller's biggest
concerns is that a buyer will not qualify for the loan to buy their home and it will
create the necessity to re-market the home and disrupt the plans the seller has made.
Since this is one of the main reasons real estate transactions fall through, the sellers
concerns are warranted.
Pre-Qualification
can be done by phone, e-mail, or fax, and there is no obligation or cost to you.
Select and View Properties
Once you have obtained pre-approval and have determined your affordable price range, you
can begin to select and view available homes and new construction models. Having a set of
guidelines based on requirement is essential to making decisions based on facts and not
just emotions.
It is recommended that you keep notes and photos of houses you have seen. If you write
down the unique features, as well as the pros and cons of each home you are considering,
you will not have to rely strictly on memory.
Some
important questions to ask when viewing a home include:
- how long the
property has been for sale
- whether or
not the price of the property has been reduced during the listing period
- whether
there have been other offers to purchase
The answers
to these questions help determine how motivated the seller is and give you added leverage
in negotiations, should you decide to make an offer.
Offer to Purchase
When you have identified a home that meets your needs, it is time to make an offer and
negotiate. Your rights and obligations will be detailed in the Contract to Purchase
Agreement.
In addition to the offer, you will need to put up an earnest money deposit as a sign of
Good Faith that you are seriously interested in buying the home. That deposit becomes a
part of the purchase price and will be held in a trust account and credited back to you at
closing toward your closing costs or down payment. The amount of earnest money varies.
However, it is normally 1 - 2% of the sales price of the home.
Your offer will then be presented to the seller with your pre-approval letter attached to
ensure the seller you are a qualified buyer. The seller will either accept, reject, or
counter the Contract to Purchase. Once a contract or counterproposal has been agreed upon,
you will proceed with the property inspection and secure your mortgage as well. If your
offer was rejected, or you were unable to come to a final agreement, your earnest money
check will be returned to you.
Inspect the Property
The Contract to Purchase will have a written provision that your contract is to be
contingent upon a satisfactory home inspection report. The seller is required to provide
you with a Property Disclosure, which states what is included, what is not included, what
is working, and what is not working in the home.
The Contract to Purchase will include an objection date by which this must be done. Any
items that you may request the seller to repair or replace must be submitted in writing.
The seller has a resolution deadline to respond to your request. At that time, if you and
the seller do not agree on the inspection objections, you have the right to terminate the
Contract to Purchase.
Title Insurance and Approval
It is the seller's responsibility to provide you with Title Insurance. The title search is
done by a Title Company, and a title commitment will be provided to you before the title
deadline in the Contract to Purchase. If there are any judgments, liens, or recorded
easements, they will show up on the title commitment. It is the seller's responsibility to
take care of any problems with the title company and assure you clear title.
Your lender will assign an appraiser to go out and appraise the property. The cost of the
appraisal will either be paid by you up front when you apply for your pre-approval, or at
closing. The property must appraise for the purchase price or above. If it does not, you
have a few of choices.
- terminate
the Contract to Purchase
- ask the
seller to adjust the sales price
- pay the
difference in cash and continue with the contract.
Secure the Mortgage
If you are pre-approved, the only tasks left for the lender to do are:
- get the
appraisal
- get a survey
of the property, if needed
- ask you to
provide them with your current pay stubs and bank statement
It is very
important that you not go out and make any large purchases that might affect your credit
score or rating. It is best to discuss anything questionable with your lender first
so that it will not affect your mortgage.
Final Walk Through
Shortly before the date of closing, you will make a final inspection of the house you are
buying. With a copy of the Contract to Purchase in hand, verify that all items that were
supposed to be included in the house are indeed present, and similarly those that were
not, have been removed.
Closing
The Closing is the process by which the title to your new home will be transferred to you,
homeowners' insurance will be verified, the terms of the mortgage will be finalized, and
the keys to the new house will be given to you. In the state of Colorado, the property
belongs to the buyer as of the day of closing and Delivery of the Deed. Unless otherwise
stated in the Contract to Purchase, the seller must be completely out of the property by
the time and date of the closing.
Although there may be additional documents involved, the primary items that are handled at
the Closing include:
- The
Settlement Statement
- The Contract
to Purchase
- The Loan
Package from your lender
- Title
Insurance
- Homeowners'
Insurance
- The Title
and the Deed
- Down Payment
- Closing
Costs
Taking Possession and Moving In
This is the day everyone has been waiting for! It will be a busy day so be rested up! The
weeks leading up to your moving day will be busy with many diverse tasks. It is a good
idea to refer to a timetable to help keep you organized and to ensure that important
activities are not inadvertently neglected. Congratulations on the purchase of your new
home!
