The homebuying process can be both exciting and overwhelming. If you’re a first-time homebuyer you may have no idea where to start. If on the other hand, you have bought a home before, you may have felt underprepared or had a bad experience?
No matter your situation you likely have questions ranging from, When is the right time to buy a house? How much house can I afford? How does the home buying process begin?
We have boiled down the process to 8 simple steps. By educating yourself on this process, it will not only reduce your stress, but you will also be able to enjoy the journey along the way. These steps to buying a house will set you on the right path and assure you get the right home for the right price.
When considering purchasing a home you should ask yourself two things: First, how much can I afford to spend on a monthly mortgage and how much am I willing to spend on a monthly mortgage, based on your monthly budget?
Unless you are able to pay cash for a home, you’re going to need a mortgage loan. Since the home loan is typically the most complicated aspect of the home buying process this is the best place to start.
The mortgage lending process is complicated because of the various different loan types and long list of requirements and options associated with each one. Finding a qualified mortgage professional is a crucial first step.
In order to find a good lender, you will want to ask your REALTOR® for a recommendation for a local lender.
If you aren’t working with a REALTOR® yet, let us help! Otherwise, we suggest asking family and friends about their lenders.
The first step to buying a house deals with financing. You should begin with two important tasks at the very beginning of the mortgage loan process, pre-qualification and pre-approval - in that order. It is important to know the difference between pre-qualification vs pre-approval.
Your mortgage lender or mortgage broker will be able to help you with the pre-qualification process. The pre-qualification stage involves collecting financial information about your current situation. The lender will look at your monthly income, and do a credit check by pulling a credit report in order to determine your credit score.
The lender should help you choose a loan type like conventional loans, an FHA loan, or a VA Loan. Additionally, they should talk about things like private mortgage insurance, and the home appraisal process.
Pre-qualification will give you a clearer idea of how much cash you’ll need for a down payment, how much you can afford to spend on a house, and what your monthly payment will be.
We have a comprehensive Mortgage Pre-Qualification Guide. This guide walks you through the entire pre-qualification process in simple terms. You can also use our Colorado mortgage calculator to figure out how much your monthly mortgage payment will be.
Make sure you explore your options as far as lenders are concerned, you don’t have to commit to the first one you meet. It makes sense to talk to different lenders until you find one you are comfortable working with. Many people shop around looking for a lower interest rate, while mortgage interest rates are important, so is service.
It is also important to obtain something called a Loan Estimate from any lender you make a mortgage application with. The loan estimate provides the borrower with important information like the estimated interest rate, monthly mortgage payments, and total closing costs for the loan.
The lender can’t give you the full-blown loan estimate until you have a specific property under contract. This is because property taxes and homeowners insurance rates are going to be different from property to property. The lender should be able to give you a breakdown of their costs and fees though, this is sometimes called a fee sheet.
If this is your first home in Colorado, you may qualify for a Colorado First Time Home Buyer Program and your lender should be able to help you apply for these types of loan programs.
What about online lenders? Online lenders are more popular these days but maybe risky, especially for most first-time home buyers. Although there are reputable online lenders, you can’t beat a trusted local resource. If you are a first-time homebuyer or have a complicated loan, you should consider using someone locally.
Worried about your credit? A good lender can help you get on track with cleaning up bad credit or establishing good credit. If you want to know a little more about how bad credit plays into the process of buying a house check out our snippet Buying a House with Bad Credit.
What Every Loan Officer Wished Their Home Buyers Knew by: Kevin Vitali
Once you figure out how much you should spend on a home you’ll make a list of your wants & needs, we call this a needs assessment.
This is the step where you’ll create a list of things that are important to you like what neighborhood you want to live in, how many bedrooms, bathrooms, square footage, proximity to schools, etc…
This list should start with the type of home you want. Are you interested in a condo or townhome, or is a single-family home the only option you will consider?
You’ll also want to determine the absolute essentials. Absolute essentials are things like more bedrooms, more bathrooms, closer to work, or a specific school district. As you build this list you’ll move towards items that would be nice, but not essential, to have such as a good view, large closets, etc…
Share your wants and needs list along with the information you learned during the pre-qualification process with your REALTOR®. Your REALTOR® can then begin doing their homework based on your finances and needs and wants.
If you’re nervous about sharing your upper price range limit with your REALTOR® you are not alone. However, a good REALTOR® will respect your boundaries. If you’re not getting that vibe from your REALTOR® you should consider finding a new one.
If you’re nervous about sharing your upper dollar limit with your REALTOR® you are not alone. However, a good REALTOR® will respect your boundaries. If you’re not getting that vibe from your REALTOR® you should consider finding a new one.
The next step is to look into neighborhoods and houses. Your REALTOR® should take your wants and needs list and the upper and lower price limits you have established and put together a group of properties and areas to start your house hunting. It is important to keep realistic expectations and your REALTOR® should be an excellent resource for this. As you find homes online or in person be sure to share those with your REALTOR® so they can help you weed through what is feasible for you.
One thing that could be limiting you is choosing a neighborhood with a school district that outperforms others in the area - this usually drives up home prices.
What to Look For When Searching For a Neighborhood Bill Gassett
Interested in a fixer-upper? Keep in mind this could require more money or construction skills and knowledge and plenty of time. Let your REALTOR® know if you’re up for this type of adventure.
How To Purchase And Renovate A Fixer-Upper Kyle Hiscock
It could be wise for you to look at new construction. New homes will generally be more expensive but for many buyers, the sacrifice is worth it.
Your REALTOR® should know the new home communities and builders that are active in the areas you are interested in. Working with a REALTOR® on a new build is a good idea. A REALTOR® will be your advocate and liaison between you and the home builder and their representative.
Depending on the type of home you build you may need to change lenders. This is because not all lenders can provide construction financing. if you are buying a tract home in a subdivision the Builder will most likely want you to use their lender. If on the other hand you're building a custom home you're going to need to arrange financing. Here's a great article about how new construction loans work. It's also good to know that both VA and FHA offer construction loans as well.
Wondering about the terms short sale and foreclosure properties? In the current market, there are not many options as far as these go but you can read about them here: the difference between a short sale and a foreclosure.
At the end of the day, a great real estate agent is your best resource for finding hidden gems.
Your offer has been accepted and you are now officially under contract on a home. The first thing you're going to want to do is to get a copy of your contract to the lender you have chosen.
Once you’ve submitted a full loan application and a contract, the lender has 3-days to get you a loan estimate. The loan estimate is a document the lender is required to give you after you have applied for a loan. This document breaks down the true cost of the mortgage loan.
The next phase of the loan process is underwriting. This is where a lender assesses whether or not they will assume the risk of your mortgage. They will likely ask for more documentation to prove they are confident you will pay back your loan.
The next phase of the loan process s underwriting. This is where a lender assesses whether or not they will assume the risk of your mortgage. They will likely ask for more documentation to prove they are confident you will pay back your loan.
One of the final requirements of obtaining full loan commitment is the inspection and appraisal. Don’t forget, if you have a good REALTOR® they will be happy to explain everything throughout this process. You can read about this next.
Everything You Need to Know About Mortgages - Springs Homes
Now that you have found a home you’re under contract, you need to do what's called due diligence work. This is one of the most important steps to buying a house. This means respecting contingencies that were written into your real estate contract such as inspections and the appraisal.
During the home inspection phase of the home buying process, the physical condition of the property and any potential health or safety issues are evaluated.
Your REALTOR® will most likely recommend a home inspector, but if this doesn't happen you can ask friends or family for referrals.
It’s important to find an inspector you trust, so you should spend a little time on the phone having a short conversation learning about the inspection process and what they will be looking for. You should also share your priorities and or concerns before you choose someone.
Home inspectors are certified, not licensed. We can’t stress the importance enough of using an inspector that is certified.
In addition to the primary home inspection, there are some additional inspections that are really valuable. For example, Colorado has high radon levels, so a radon test is very important. If you’re looking in an older neighborhood you’re going to want to do a sewer line scope. Also, for older homes, you might want to do a lead-based paint assessment as well as testing for the existence of asbestos or mold. Again, your REALTOR® should help guide you and request specific tests from the inspector.
Once you have the results back from the property inspection study them carefully. When you and your REALTOR® have a good idea of the property’s condition as well as any issues and or problems you’ll decide how and if you want to proceed.
If you choose to proceed you have two choices; first, you can take the house as-is and proceed to close. This tends to happen more in a seller’s market. The second choice is, along with your REALTOR®, you will put together a list of what is called unsatisfactory conditions. The seller then has the right to fix these things, offer a dollar amount settlement, or flat-out reject the proposal.
You, the home buyer, will pay for the appraisal but the lender will order it. The appraiser unlike the inspector is licensed and adheres to a strict set of guidelines. Appraisers undergo continuing education in order to maintain their licensure.
The appraisal happens without the buyer being present. The lender orders it, the REALTOR® will schedule it and the appraiser goes in alone makes their assessment based on measurements, construction quality, number of rooms, floor plan, and condition. All of this data gets put into a spreadsheet and the appraiser applies debits and credits based on condition and quality as they relate to the comparable sales in the area.
Once complete, the results of the appraisal are sent to the lender and the buyer and their agent are notified as to the status, the property either appraised or didn’t appraise. To learn more about appraisals read our article What you need to know about appraisals.
One of the requirements of the real estate contract should be that the seller provides a clear title, free of any encumbrances, liens, or clouds.
The seller would do this by providing a title insurance policy. This type of policy is issued by a title insurance company. In addition to providing title insurance, the title company can also provide escrow services and closing services. While many areas still use attorneys and escrow services, the title company is the most common way to take a transaction from under contract to closing.
This is why the choice of the title company is very important. Here’s a bit about how to choose a good title company.
Colorado is what is known as a “Title Theory” state. This means that the buyer gives the Deed to the lender until the loan is completely paid off. It’s important to note that the buyer retains all rights associated with having “title” to the property. Here is a deeper dive into Title vs. Deed.
Why do I need Title Insurance? This is because there are a number of different scenarios that can potentially make a title problematic. A clear title means the property is free of any liens, judgments, encumbrances, or other potential clouds on the title.
The seller will provide the buyer with a title insurance policy at closing. This policy acts as a guarantee that the title is clear.
During this process you’ll receive a lot of paperwork to read through, and so will your REALTOR®. Part of a Buyer Agent's job is to read the title work looking for potential problems and or exceptions to the title. They will look for things like easements and right of way agreements.
One aspect of the title work you are going to want to read carefully will be any restrictive covenants or homeowner’s association documents associated with the property. These will be included with the title work. Familiarizing yourself with the HOA requirements will save you potential headaches in the future.
The closing process is the final stage before being handed the keys. The closer will make sure all of the paperwork is signed and in order.
You’re almost at the finish line on the steps to buying a house. It’s been a journey from start to finish! To help you finish up here is our comprehensive Closing Checklist for Home Buyers.