Buying a house can be both exciting and overwhelming. If you’ve never bought a house before you may have no idea where to start. If on the other hand you have bought a home before, you may have felt under prepared or had a bad experience? These steps to buying a house will set you on the right path.
No matter your situation you likely have questions ranging from, When is the right time to buy a house? How much can I afford? How does the home buying process begin?
Springs Homes is happy to provide this home buying process guide and a little insight from our real estate experts to help ensure your home buying experience is a good one.
As you go through this page guide please remember that a good REALTOR® will help you through every step of the process.
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?
Unless you are able to pay cash for a home, you’re going to need a mortgage loan. Since mortgage financing is typically the most complicated aspect of the home buying process this is the best place to start.
Understanding mortgage lending is complicated as there are several different loan types and plenty of requirements and options associated with each one. Finding a qualified mortgage professional is crucial.
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.
One of the first steps to buying a house deals with the mortgage. There are 2 early stages at the beginning of the mortgage loan process. They are pre-qualification and pre-approval - in that order. It is important to know the difference between these two stages.
Once you find a solid lender they will help you with the pre-qualification process. Think of the pre-qualification stage as simply collecting information about your current financial situation. Pre-qualification will give you a clearer idea of what you need in terms of cash for a downpayment as well as how much you can afford to spend on a house.
We have a comprehensive Mortgage Pre-Qualification Guide. This guide walks you through the entire pre-qualification process in simple terms.
Make sure you explore your options as far as lenders are concerned, you don’t have to commit to the first one you meet.
3 Tips to Select a Mortgage Lender - Anita Clark
Once you’re pre-qualified you will move onto the pre-approval process. Yay! This is when you will become pre-approved for a loan on your future home!
It is important to build a good relationship with your potential lenders during this process - when you do finally get to make an offer on a house, you’re going to have to submit something called a lender letter. This letter is included with your offer. The purpose is to assure the sellers and the listing agent that you will have no problems obtaining a loan.
If you’re a first time home buyer in Colorado, you may qualify for a Colorado First Time Home Buyer Program and your lender should be able to help you apply for that.
What about online lenders? Online lenders are more popular these days, but may be risky 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 home buyer or have a complicated loan, you should consider using someone locally.
Worried about your credit? A good lender will 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.
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, proximity to schools, etc.
This list should start with the type of property 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 or closer to work. 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 off of your finances and needs and wants.
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.
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 representative.
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: difference between a short sale and a foreclosure.
At the end of the day, a good REALTOR® is your best resource for finding hidden gems.
Woo! You found a house you’d like to make your home. Time to make an offer. The first step is to establish an offer price with your REALTOR®.
Your REALTOR® should produce something called a CMA, this stands for comparative market analysis. This analysis looks at similar homes in the immediate area that have sold in the last 6 months. Your REALTOR® will be looking for exact matches; properties that are exactly like the one you are considering.
This is important information to have, especially if you are buying a home in a "Sellers Market". This is nothing more than an analysis to help you with the offer price.
Next, you and your REALTOR® will use this information to come up with the most well-informed offer you can make.
Before your REALTOR® actually writes the offer, there are three things your REALTOR® should consider:
Now is a good time to touch base with the lender and give them a heads up that you are getting ready to make an offer on a property. This is when your REALTOR® will request the lender letter.
Next, you'll produce earnest money. The earnest money is your way of saying we are serious about this transaction. If you don't follow through to the terms of the ultimate contract, the earnest money could be the seller's for keeps.
When your REALTOR® writes the offer, there will be a number of real estate contingencies in place in order to protect you from losing your earnest money while you are doing your inspections and getting your loan finalized. Responsible REALTORS® and home buyers don't tend to lose earnest money. It can happen though if you back out at the last minute.
Once your offer is accepted, the “Due Diligence” period begins. This means scheduling and performing inspections, reviewing covenants and title work, and a big list of other items.
Congratulations! You’ve completed another one of the steps to buying a house, you are one step closer to owning a home!
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.
10 Biggest Mortgage Mistakes First-Time Home Buyers Make -Xavier De Buck
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.
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 an 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. 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 closing. This tends to happen more in a seller’s market. 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.
Negotiating after the home inspection can be very stressful, this is why it’s important to understand the condition of the current market. The best advice we can give is to pick a good REALTOR®!
How To Negotiate After The Home Inspection– Paul Sian
In addition to the inspection, your lender will require an appraisal. The lender wants to know if the house is worth what they’re lending you to purchase it.
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 is going to be that the seller provide a clear title, to the buyer and lender, if a mortgage is used to buy the property.
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 the 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 of 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.
You’re almost at the finish line in 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 Sellers.
The final walk-through is the next part of a successful closing. Now is the time to make sure the contract negotiations were executed. It is in your best interest as the homebuyer to make sure that all of the i’s are dotted and the t’s are crossed. Details often get missed by sellers in the rush to get out of the house. For this reason, we do a final walk-through.
The final walk-through typically happens after the sellers have moved out, usually the morning of the actual closing. You should go to the walk-through with your inspection resolution list, receipts for repairs, a copy of your contract and original MLS sheet, and your REALTOR®.
As the home buyer, you’ll want to keep your eyes open during the walk-through. You’ll want to check for things like window coverings, appliances, and anything else that was agreed upon in either the contract or the inspection resolution.
If things aren’t as you expect them, the seller and you will have time prior to the actual closing to work out their differences. It is important to get these things worked out prior to closing.
Time to go to the closing table. There, you’ll be presented with a large stack of paperwork. There will be lots of numbers and you’ll sign your name more times than you ever wanted to!
Prior to arriving at the closing, your REALTOR® and/or lender should go over your final figures, including closing costs and the settlement statement. There will be associated fees on both sides of the table for both the buyer and the seller. There’s nothing worse than getting to the closing table and having the buyer ask what are all these closing costs? Make sure you understand all the fees, premiums, and charges you are responsible for before signing.
As far as the closing itself is concerned, there should be a closer from the title company at the closing table. It’s important that you ask questions of the closer, your REALTOR® or your lender to explain what you are signing. Yes, legal documents have important ramifications - don’t just sign because you feel pressure.
After all the documents are signed, the closer should give you copies of everything you signed, any funds you are entitled to and of course most importantly, the keys to your new home.
Whew! You made it!