Buying a new home can be both exciting and frightening for the first time homebuyer. On the one hand, homebuyers are thrilled to be finally buying a home on the other hand owning a home and having a mortgage seems like a big responsibility.
First time homebuyers…fear not! The home buying process is pretty simple and with the right REALTOR and lender by your side, you will breeze through the process! And once you’re in your home, you’ll wonder why you waited so long to buy a home.
The first thing you need to do is talk to a lender.
Before you can start house shopping you need to find out how much money you can shop with. So step one of the home buying process is to contact a lender. I suggest talking to more than one lender. Lenders will vary on the programs and rates that they offer, so it’s smart to shop around. Most people immediately think of their bank as the place to go for a loan. However, be sure you also get quotes from a mortgage broker. Mortgage brokers typically have a many different lenders that they work with so they can shop around for the best loan to suite your needs and aren’t limited to one lending institution. I have also found that mortgage brokers are more likely to work extra hard for you. Typically you can reach them in the evenings and on weekends. Sometimes your local bank representative is only available during banking hours. Your credit will not suffer at all from applying with multiple lenders, as the credit bureau companies realize that people shop for loans.
How much money do you need to save for down payment and closing costs?
Well, this is something that your lender will inform you of. If you are short on downpayment money, ask your lender about downpayment grants. There are numerous programs out there that offer downpayment assistance. Some of the downpayment assistance programs don’t even have income restrictions. There are constantly new programs available on the market. So even if you think you don’t have enough money to buy a new home, you may be a lot closer than you think. My favorite program at the moment is the 1% down conventional loan program. Absolutely amazing, it requires only 1% down and the lender contributes a 2% gift so you walk into your new home with instant equity! Plus, for a limited time, I am offering a 1% contribution to closing costs on a home purchase of $300,000 or higher. Homebuyers, you really can’t beat this program right now! Check out the video.
Choose a REALTOR
Now that you are approved for a loan, you know your budget and you have enough for your down payment and closing costs, you are ready to shop. So your next step is to find a REALTOR. Not all real estate agents are created equal, but it is very important that you get a good agent working for you. Most people ask a family or friend for a recommendation. Your lender can also refer you to a real estate agent that they have worked with in the past. You won’t really know if you have a good REALTOR until you start working together. Be leery if your agent won’t work with you until you sign a contract with them. Yes, many agents require this to make sure that they get paid for their work, but it isn’t necessary. I don’t require buyers to sign a contract with me until we’ve gone out and looked at houses together a couple times. I am confident in my work and customer service and know that clients will continue working with me once we get started together. If your agent doesn’t respond to your questions in a timely manner or is often unavailable to show you houses, fire your agent and get a new one.
Oh, and by the way, in case you didn’t know, the seller pays for all the REALTOR’S commissions, even the buyer’s REALTOR. So using a REALTOR on the purchase of your new home costs you, the buyer, nothing!
Time to shop!
Once you have your loan and your REALTOR, it’s time to shop! Keep in mind that in a sellers market, like the market currently in the Denver area, you want to look at houses that are under the top of your budget. Many homes, especially homes that are under $350k are going for above list price. So, if your budget is $250k, it’s best to look at homes under $240k so that you have room to offer above list price.
Making an offer.
When you find the home that you would like to offer on, your REALTOR will discuss with you the price and other details regarding your offer. Your REALTOR will prepare your offer, you will sign it and it will be sent off to the sellers. Your offer will have an acceptance date and time. This is the deadline that the sellers have either accepted or declined your offer by. Now that you have submitted your offer, you wait. Sometimes this is the hardest time for buyers, especially in a tough sellers market.
The home seller will either accept, decline or send you a counteroffer. Once the seller accepts your offer or you sign a counteroffer you are officially under contract!
You’re under contract, what now?
Once you are under contract, your first step is to submit your earnest money check. This is typically a personal check written to the title company. This money will be applied to your closing costs and is insurance to the seller that you won’t back out off the offer. Although you do have a few dates while you are under contract to back out of the deal and still get your earnest money back.
You will then have an inspection done on the home. After the inspection you and your agent can decide if there are any items that you wish the seller to fix. You can ask the seller to repair items or ask for seller concessions. This is money that would be applied to your closing costs. So if you asked the seller for $3000 instead of repairs, you would not get a check for $3000. The $3000 would be credited to you in the transaction and you would come to closing with $3000 less than you would have to without the seller concessions applied. Once you decide what you would like the seller to repair, your REALTOR will send the seller a list of items to be repaired. The seller will either agree to your requests or will negotiate. If you and the seller cannot agree, this is one of the times you can walk away from the deal and get your earnest money back.
For more about inspections in Colorado, read COLORADO HOME INSPECTIONS – WHAT TO EXPECT
After you have passed the inspection phase of the transaction, you will next have an appraisal done. This will be ordered by your lender. Some lenders require you to pay for the appraisal upfront, others add it into your closing costs. If the home appraisal comes in at under the purchase price, then the buyer and seller need to come up for an arrangement for how to proceed with the purchase of the home. A lender will only loan you money based on the appraised value of the home not the purchase price. So if a home appraises at $10,000 under purchase price, this poses a problem. Often times the buyer and seller will work out an arrangement in this case and meet in the middle where the buyer will pay an extra $5000 cash and the seller will lower the price by $5000. Sometimes though, the buyer doesn’t have any extra cash to be able to spend anymore on the purchase of the home. In this case, the seller either has to agree to lower the purchase price to the appraised amount or the deal is off. If the buyer and seller cannot come up with an agreement, the buyer has the right to walk away from the deal at this point and get his or her earnest money back.
Once the inspection and the appraisal are complete, it’s pretty much smooth sailing into closing day, which in Colorado is about 30 days out from the time you went under contract. During these last days of the transaction your lender will most likely be asking you for documents for the final underwriting of your loan. Be sure to get documents to your lender in a timely manner so closing isn’t delayed.
Loan objection deadline
Before closing you have one final chance to walk away from the deal. It’s called the loan objection deadline. This deadline is about a week before closing. By this date you should know what your loan is going to look like, an approximate amount of money you will need for closing and a close idea of what your monthly payment will be. If you for any reason you are not okay with how your loan looks, you can still back out of the deal by this loan objection deadline and get your earnest money back. However, keep in mind that you will have still spent money on the inspection and appraisal and you will not get this money back.
Within a few days of closing, you will do a final walkthrough on your home. This is to make sure there has been no damage on the home since you saw it last. You can also verify that repairs that were requested after inspection have been completed.
And the last step to your home buying process is to go to closing and sign your name over and over and over again. Closings typically take about two hours. You will show up to closing with a certified check in the amount of your closing costs plus down payment and you will leave with the keys to your new home.
Congratulations! That wasn’t that hard, even for a first time homebuyer!
If you are ready to purchase your new home, I would love to work with you as your REALTOR. I especially enjoy working with first time homebuyers and would love the opportunity to help you find your new home! You can reach me at 720-476-0370.