Making large changes in life is always hard. And buying a new home is no exception to this rule – especially if it is a first-time purchase. You will find yourself faced with many challenges and if you are not prepared, you’re in for quite a ride. This is why we would like to provide you with a manual which all Colorado home buyers can use. It is our hope that this guide will offer you a stress-free real estate purchase with minimal knowledge and preparation.
Note that you can always go with hiring an experienced Colorado realtor to guide you through this process. But if you are looking to do this by yourself, here are some questions you need to answer.
What is the general steps Colorado home buyers should follow?
- Pre-qualification – you need to research the terms you need to meet before getting into the entire home-purchase process.
- Finding the right home –
- Make an offer –
- Secure your loan –
- Get an inspection and appraisal –
- Attend closing –
How tight is your budget in fact?
When it comes to this type of question – the answer is different for everyone. Lending businesses use two ratios as measuring tools for your mortgage and debts:
- Front-end ratio – the comparison of how much your mortgage payment would take from your income.
- Back-end ratio – comparison of how much your debt payments would take from your income.
The important fact to remember here is that ratios have minor variations from lender to lender. The main victory to be taken from these situations would be a better credit score permit. Safest way to go – sit down with a mortgage expert which will give you a detailed analysis of your situation. Not only will this give you a wider picture of what you are dealing with, but it will also help you cross compare lenders and their respective offers.
What is the amount of pocket cash future Colorado home owners should have on them?
Two influential factors here – loan type and home price.
This number can differ depending on the type of loan and the price of the home that you purchase. The first out of pocket expense will be the earnest money, which is the deposit of good faith that you place on the home, after your offer is accepted. The next out of pocket expense is typically the inspection, and in most cases, this is paid at the time of inspection. This can range from $200-$1000 depending on the size of the home, the price of the home and what needs to be inspected. A common example is around $275 for a 2800 square foot home.
The down payment is typically the largest portion of your out of pocket expenses. This is the percentage of the price of the home that you must pay in order to receive your loan. There are many loan options here and some conventional loans for example, require just 5% of the purchase price of the home. The last out of pocket expense for home buyers are the closing costs for the home. This is the cost associated with the processing of the paperwork to purchase the home and other odds and ends as well (see below for a more in depth explanation). I always suggest that when homebuyers sit down with a mortgage specialist that they ask to be shown an example of what their closing costs would look like for the Colorado home buyers, based on what they qualify for.
Should I make a wish list?
Yes, but keep an open mind and try not to over-reach. Main focuses of your wish list should be:
- Quantity of bedrooms and bathrooms
- Size of the property
- Age and condition of the real estate
Once you establish what it is you want out of your new Colorado home, prepare for compromises. Because unless you happen to build the entire home from scratch, you will never get exactly what you are looking for. So define a few simple trade-offs you would be wiling to accept as one of the Colorado home buyers.
What can and can’t my real estate agent do for me?
Your agent is there to help you through-out the home buying process from start to finish. They will scour and search the MLS looking for homes that best fit the wish list you provided. They will show you countless homes that you are interested in, as well as recommend homes that meet your criteria. When you find that perfect home they will negotiate on your behalf to help make the deal happen. They will prepare contracts associated with the purchase of your home ensuring that they are in your best interest. An agent will work with the title company, lender, seller/selling agent, inspector and appraiser to make sure that all the pieces of the puzzle fit together in the timing that is appropriate. They will happily answer any questions that you may have about the process and if they don’t know the answer they will find it out.
An agent will not provide you with legal advice, they will instead refer you to an attorney. They will not provide you with financial advice, this will include telling you how much you can afford or how much you should spend on a home. They will not tell you what to offer on a home but can provide a range of what homes have been selling for in your neighborhood. An agent is there to advise you, give you the facts about the market, and provide you with tools to make a sound decision. Ultimately, as the home buyer, you will be making the payment, not the agent, so it is your decision on what to offer. A good agent will never pressure you or make you feel forced to do anything that you are not comfortable with during the home buying process.
What are closing costs?
Closing costs are the fees that are paid when purchasing a home outside of your down payment. These fees cover items such as title policies, recording fees, inspections, appraisal, courier charges, HOA reserves, reserves for mortgages, and origination fees that the lender charges (often 1% of the loan). Closing costs can be anywhere from 2-3% of the purchase price of the home. On occasion some or most of these fees can be negotiated to be paid for by the seller, depending on the market and circumstance.
What is an Inspection?
A home inspection gives an overview of all the ins and outs of the home. The inspector should go over all structural components, exterior, interior, plumbing, electrical, roofing, heating, insulation and ventilation, air conditioning, appliances, and interior components of the home. This will provide a list of the overall condition of the home as well as some insight into items that need to be repaired or replaced.
What is an appraisal?
An appraisal is used to determine the value of a property. The value and the sales price do not always match up. In addition, the appraisal makes sure that the home meets the FHA minimum standards for being able to provide the loan, and that the home is marketable. This helps to protect the bank’s money that they are loaning to you, as well as, you as the home buyer.
Are there any down payment assistance programs?
Yes, there are first-time Colorado home buyers mortgage down-payment assistance programs available across the country. The one that is the most common here in Colorado is given by CHFA or the Colorado Housing and Finance Authority. Their program is designed to loan you a portion of the down payment which you then repay later. They also require you to attend a first time Colorado home buyers class which is filled with an abundance of fantastic information and resources.