If you’re beginning to plan the purchase of your first home, you’re not alone. 39% of all homes purchased in 2013 were from first time home buyers. Below you’ll find tips for first time home buyers, answers to common questions and a list of resources for new home buyers in Colorado.
5 common mistakes to avoid
5. Unrealistic expectations. As a first time buyer, you’ll likely need to make compromises. Be open to a home that needs cosmetic updates, budget for home maintenance and shop in a price range you are comfortable with.
4. Not getting professional help. Buying a home is one of the largest purchases you will make in your lifetime and you should work with an expert who will advocate for you. A buyer’s agent will familiarize you with the market, prices, locations and the home buying process to increase your confidence and aid in a successful experience. An agent will provide you with current market data to establish an offering price at fair market value, structure an offer with factors to help the chances of your offer being accepted, negotiate on your behalf throughout the process, provide recommendations on service providers such as inspectors and lenders and keep everyone involved in the transaction on task.
3. Making a large purchase after going under contract. If financing the purchase of your home, be aware that your lender will pull your financials at the beginning of the loan approval AND several days before closing. Large purchases or changes in your accounts may result in not receiving loan approval.
2. Selecting a lender without a proven track record. Avoid online lenders and out of state lenders who are not familiar with Colorado real estate transactions. Colorado is a table funding state, not an escrow state. If the lender fails to meet a deadline or utilizes an appraiser unfamiliar with the housing market, you may lose the house and your earnest money.
1. Not getting pre-qualified. Many people dread the financing aspect of purchasing a home. If you don’t pre-qualify you are risking looking at homes in the wrong price range, feeling rushed in selecting the best type of loan and being rejected in making an offer without demonstrating qualification.
Frequently asked questions
What are closing costs? Closing costs are typically lumped into a single amount for you to pay at closing. These fee’s may include your down payment, prorated/prepaid expenses for the home and settlement fees. Your lender is required to provide you a Good Faith Estimate within 72 hours of submitting your loan application which will provide an estimate of your settlement fees and loan terms. Example of common closing costs in Denver include:
- Credit report – is a nominal fee charged by your lender, approximately $25.
- Appraisal – is ordered from an appraisal management company by your lender, this may range from $350-$450.
- Origination – lender’s charge for processing and handling the loan, customarily 1% of the loan amount.
- Discount points – Are a way to receive a reduction in the interest rate in exchange for paying discount points to end up with a lower monthly mortgage payment. Discount points are based on the loan size and one point typically cost 1 percent of the loan amount, or $2,000 on a $200,000 loan.
- Owner’s Title Insurance policy – traditionally paid by the seller
- Lender’s Title Insurance policy – Usually around $100-150, paid for by the buyer
- HOA transfer fee – varies by association
- Survey – depending on the type of survey $150 – $600. An improvement location survey which is sufficient in most cases is usually around $150.
- Document Preparation – approximately $100
- Recording Fee’s – approximately $35
- State documentary fee’s/tax stamps – one penny per thousand.
- Real Estate Closing Fee – Approximately $300, split 50/50 by the buyer and seller.
- Pre-paid items – items collected in advance by the lender: interest, homeowners insurance (1 years worth of premiums + 2-3 months of premiums for your escrow account), mortgage insurance (if applicable), and property taxes (2-4 months for your escrow account)
What is earnest money? Earnest money is provided to a seller with your contract proposal to demonstrate “good faith”. In Colorado, earnest money must be placed in a trust account either with the seller’s broker or the title company conducting the escrow service. Earnest money is not a down payment, although the earnest money is a credit to you at the time of closing. Earnest money is not generally at risk unless you default. A default occurs when you withdraw from the contract after the due diligence dates have passed. Due diligence may include but is not limited to inspection, title insurance commitment, home owners association document review, and loan objection deadline.
What is buyer agency? A buyer’s agent works solely on behalf of the buyer to promote the interests of the buyer with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the buyer. A buyer agency agreement is required which sets forth the duties and obligations of the broker and the buyer. Buying a home is the largest purchase you will make, be sure to have a professional on your side.
How much will it cost for you to represent me as a buyers agent? Almost always the buyer’s agent is paid by seller.
What do I need to have prepared for the loan application? Every lender is different, in general you will need the following:
Employment
- Address for 2 full years
- Gross monthly income
- W-2’s
- Proof of pension, retirement, disability or social security
- Proof of income from rentals, investments, etc
- If self employed – 2 years of 1040 tax returns and current year profit/loss statement
Creditors
- Each creditors name, address and type of account
- Account numbers, monthly payments and approximate balances
Banking
- Names and addresses of savings institutions
- Account numbers for all accounts with types of account and present balances
Real Estate
- Copy of signed contract, addendum’s and instructions on how to contact your real estate agent
- If selling a home, copy of the sales contract
Miscellaneous
- List of assets in stocks, bonds, land
- Social security numbers of all parties
- Cash or check to pay for application fee and possibly appraisal
First time home buyer resources
Click here for Colorado home owner resources from HUD that can help you buy, maintain and keep your home.
Click here to learn about various assistance programs available to home buyers in Colorado.
If you are thinking of buying a home in Colorado, I’d like to offer you a complimentary home buyer orientation to walk you through the entire process and provide you resources to help you every step of the way. Simply complete the form below and I will be in contact shortly.