The Denver Home Buying Process
STEP 1: GET PRE-QUALIFIED
The first step is to get Pre-Qualified with an experienced lender. You can do this over the telephone and no cost is involved. You will be asked for the information regarding your income, present and past work history, your current monthly debt payments and related information. A Credit Report will be processed to determine your qualification profile for obtaining the mortgage for the purchase of your new home. This information is confidential and will be provided to you through your lender. We are happy to recommend several experienced lenders that have competitive rates and superior service.
Once you have been pre-qualified you will need to complete a Loan Application . You will most likely need to furnish the lender with the following information regarding your income, assets and other required documents:
- Pay stubs for last 30 days
- W-2 statements for last 2 years. If W-2's are not available, Federal Tax returns for last 2 years. If 1099'd, they will need last 2 years of 1099 forms along with 2 most recent pay stubs.
- Two months of each checking & savings account monthly statements.
- Most recent broker(s) statements of stock, bond, and mutual fund portfolio.
- Account numbers of creditors and outstanding balances as well as names and addresses.
- Bank account numbers (both checking and savings) as well as names and addresses.
- Source of down payment or closing costs; the lender will verify this amount. If there has been a noticeable change in your balance during the past six months, the lender will require a letter of explanation.
- Present life insurance cash value
- Employment history (2 years minimum); Name and address(es) of employer(s)
- Residential and mailing address(es) for last two years
- Copy of Drivers License
- Social security number of each borrower
- The following may be applicable as well:
- Lease and rental agreements for investment properties, if applicable.
- If a veteran, VA Certificate of Eligibility
- Homeowners Association invoice
- If divorced, copy of divorce decree
The information you provide the lender is strictly confidential. The application generally takes place at the lender’s office or over the internet. The application normally takes about one hour and you will be required to pay in advance for you credit report and appraisal. The credit report is ordered through a credit reporting agency and will cost between $50.00 and $75.00. The appraisal is required by the lender to determine that the appraised value of the home is sufficient for the amount of loan requested. The appraisal costs range from $300.00 to $500.00. These are the only two charges required by the lender prior to closing.Your lender understands your concerns and is there to help with the approval of your loan. Feel free to ask questions at the loan application about anything you do not understand. You will receive a Good Faith Estimate at the time of the loan application so you will not have any “surprises” at the time of closing.
STEP 2: YOU FOUND A HOME! LET'S MAKE AN OFFER!
When you find the home for you, we will call the listing agent and ask for as much information as we can get for you; terms regarding the sale, multiple offers, date of possession, motivating factors (if they will disclose) etc. You will then be able to determine what you are up against in the competition to purchase the property and how best to structure the offer. We will run a comprehensive analysis on the comparable solds in the neighborhood to determine the best offer price. By doing this we will look at homes that have sold within the last 6 months and within a mile of the property based on similar beds, baths, square feet, finishes, location, etc. We will then write the Contract to Buy and Sell Real Estate and walk you through the terms and conditions of said Contract. In order to submit the offer you will need your pre-qualification letter from your lender stating you are pre-qualified for the purchase price in the Contract as well as an earnest money deposit.
STEP 3: EARNEST MONEY DEPOSIT
Your understanding of the earnest money deposit is of the utmost importance. At the time a written offer is initiated , you will be required by the Seller to include a personal check or cashier’s check with your offer. This amount is set by the Seller, is somewhat negotiable and typically between 1-2% of the purchase price. Earnest Money is deposited with either the Listing Broker or Title Company upon acceptance of the contract and will remain in escrow until the time of closing. This amount is credited to the buyer as partial down payment and represents your intent to purchase the property. If the offer is not accepted, the earnest money is returned to you. Also, in the event that you rightfully terminate under the terms of the contract due to inspection issues, title issues, appraisal issues or you simply do not qualify with a lender for a new loan, the earnest money is refunded to you provided the sellers are given notice on or before the specific deadline stated in the Contract.
STEP 4: YOU ARE UNDER CONTRACT. NOW WHAT? REVIEW TITLE INSURANCE POLICY
Once your Contract has been accepted by the Seller and you are officially under contract, the Seller will (typically) purchase a title commitment for you. A title commitment will show if there are any problems with the home's title and that the Seller really owns the property. A title professional will search public records looking for any problems with the home s title which include but are not limited to things such as mechanics liens, tax liens, judgements, etc. Title companies seek to resolve these issues prior to closing. But what happens if a problem occurs that is not found in public records? This is what the title insurance is for! It helps protect you against any title problem arises during or after you buy your home. This title policy protects you for as long as you or your heirs have an interest in the property.
STEP 5: INSPECTIONS!
General Home Inspection: Whether you are purchasing a re-sale or new construction property, we highly recommend having a General Home Inspection. A Home Inspector is an individual who will complete an inspection on the home you wish to purchase. This inspection will determine the condition of the roof, furnace, water heater, electrical outlets, appliances and much much more. Home Inspectors seek to identify observable defects effecting quality of construction, general maintenance, and overall safety of buildings and surrounding areas. Inspectors are expected to identify all observable defects in a property, to report them accurately, and to recommend the most appropriate ways of addressing these conditions. The purpose of a home inspection is NOT to produce a mandatory repair list for the seller. It is to inform the buyer of all observable defects; even those, which are routine in nature, so that the buyer will know what he is getting before he buys it. A common mistake among homebuyers is to serve the Seller with an inspection report, as though it were a legal notice. This does not mean that the buyer can't make reasonable repair requests of a seller. However, many conditions found by home inspectors involve routine maintenance, not requiring immediate attention. We recommend asking the Sellers for any items that may be a health or safety hazard. Your cost for this service will range from $150.00 to $500.00, depending upon the size of the home.
Radon Inspection: In Colorado, a odorless colorless gas seeps from our soil called Radon which is estimated to cause thousands of lung cancer deaths in the US each year. We highly recommend testing for radon in the home you are purchasing to determine what the levels are. If radon levels are 4.0 pCi/L or higher, the EPA recommends installing a mitigation system. This is a safety concern therefore something we would ask the Sellers to install. This cost is about $110 to have a company do it for you.
Sewer scope: We highly recommend having the sewer scoped on any single family home or townhome. The homeowner is responsible for the sewer line all the way to the tap in the street. It is important to hire a professional with an unbiased opinion who only scopes sewer lines and does not fix them. There are a lot of "low cost" or "free" inspections out there with companies who make a huge amount of money by telling you there is something wrong with the sewer line. The most typical problem found is root growth however breaks ,cracks and crushed pipes are sometimes found which can cost upwards of $15,000. The cost for the scope is about $185 which is a nominal insurance amount to potentially save you thousands of dollars later on.
Other Inspections: Many other inspections can be conducted including a Lead Based Paint inspection (if the home was built prior to January 1, 1978), Meth Lab inspection, Roof inspection, Structural Engineer Inspection, Mold inspection, etc. The list can go on and on. Depending on what the General Home Inspector says we may need to hire some more inspectors to finish the job.
STEP 6: ORDER THE APPRAISAL
Once we complete the inspection process we will tell your lender it is ok to order the appraisal. An Appraisal, as you know, is the market analysis of real estate. Its purpose is to measure the dollar value of property, based upon size, quality, location, supply, and demand. The appraisal process does not include a technical analysis of construction, a determination of structural stability, or compliance with building requirements. Most appraisers have professional backgrounds in business, not construction and therefore not to be confused with a Home Inspector or Structural Engineer. The appraisal will cost approximately $300 to $500 dollars (which you will pay for up front) and will be included in your closing costs. If the property does not appraise at the price you are under contract for then you can 1) Terminate the contract 2) Renegotiate the price/terms of the contract or 3) in some cases bring extra money to the closing in order to cover the difference.
STEP 7: ORDER AN ILC or SURVEY
An ILC stands for an Improvement Location Certificate which locates the improvements in relationship to the land. Examples of improvements include the house, driveway, sheds, patio, decks, fence lines, retaining walls,etc. The ILC will also show:
- the size and shape of the parcel of land
- any easements (typically utility, water, sewer, telephone, etc)
- Any encroachments, such as a building built partially or totally within an easement, a driveway built partially or totally on a neighboring parcel of land, or a neighbor’s building constructed totally or partially on the land
Some mortgage and title insurance companies REQUIRE an ILC to be sure there are no boundary or encroachment problems associated with the property, before they provide a loan or insurance. In some cases, more extensive surveying may be required to clariy or resolve problems discovered when surveying for an ILC.
A few notes about an ILC. An ILC is NOT a complete survey which determines the exact location of boundary lines. An ILC DOES NOT establish property corners, nor does it replace them. An ILC IS NOT to be used to establish property lines, nor should be relied upon to locate future improvements.
STEP 8: THE LOAN CONDITIONS DEADLINE
This is probably the most important deadline in the Contract to Buy and Sell Real Estate in Colorado because it is the last and final deadline which tells the Sellers whether you will be purchasing the property or not. This deadline says that you have met all of the lender requirements and conditions in order to receive a loan and that you are approved to purchase the property. In Colorado, you have your own subjective right to determine whether the loan you will be receiving is the right loan for you. If you decide its not, then you have the right to terminate in writing to the Seller on or before the Loan Conditions Deadline. Once this deadline passes, your earnest money becomes non-refundable, your due diligence on the property is completed and you are headed for the Closing table!
STEP 9: WALK-THROUGH
At least 1 day prior and on the day of closing, we like to schedule a walk through of your new home. This is to ensure that any inspection items that were agreed upon have been completed and that any other terms agreed upon were fulfilled such as a professional cleaning, removal of all personal property and trash, etc. If these items haven't been completed we still have time to address them with the Seller prior to closing. Then on the day of closing we like to walk through the home one more time to make sure all items agreed upon have been completed and that the home is still standing in one piece.
STEP 10: CLOSING & POSSESSION
YEY! We've made it to the Closing! Closing is the term used in the real estate industry to describe the process of transferring the deed to the property and securing the financing. The Closing is usually done at a Title Company’s office where their Title Officer acts as a scribe for the transaction. This process completes and finalizes the entire real estate transaction between all parties. Usually keys, garage door openers and any other items related to the property will be presented from the Seller to the Buyer. Once the closing is complete, you will take possession of your home, unless otherwise mutually agreed upon in writing, we all go out and celebrate and then you have us over for your housewarming party.