Colorado Springs Home Buyer Information
As your Colorado Springs Real Estate Agent, I can guide you through the process of purchasing your home. I can assist you in the selection of your home, negotiating, and making sure everything flows smoothly up to the closing of the transaction. Before you begin your search for a home, take time to make a list of what you are looking for in a home or neighborhood. If you have children, your home search may be impacted by the school district or neighborhood (a home on a busy road may not be as safe as a home in a cul-de-sac). Close proximity to parks, the grocery store, or your place of work may be some other factors to consider. If you are looking to purchase a new home, you may want to find out how the empty space surrounding the home is going to be used (stores, park, or recreational center) since it may affect the sell of your home in the future.
Preparing to buy a home will save you time in a real estate transaction such as getting pre-qualified, finding out your credit score, and having the necessary documents ready for your lender. Buying a home can bring up a lot of questions, especially, when you are a first time home buyer. Feel free to take a look at the Home Buyers FAQ for answers to commonly asked questions. Not sure how much house you can afford or if you should rent or buy a home? Refer to the link for mortgage calculators for assistance.
Home Buying Timeline
If you are going to buy a house the first thing you should do is take a look at your credit report about 3 months prior. You are entitled to a free copy of your credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion; make sure to obtain a credit report from all three as the information may vary. If you meet with a lender, they will pull your credit to make sure you qualify and do not have any problems in your credit report that would prevent you from obtaining a loan.
For example, you may have an item on your credit report such as a bankruptcy and you never claimed bankruptcy. You find out there is another person with your exact same name whose items are listed on your credit report. These problems can be corrected but you have to be aware of it first, so review your credit report! Some problems take longer to correct than others. If you believe an item on your credit report is inaccurate, you can dispute the item by notifying the credit bureau of the error. You can submit the dispute in writing, online, or contact the creditor and ask them to contact the credit bureau regarding their error.
So why is your credit score so important? A lender will look at your score to determine if your credit risk is too high for a home mortgage. If your credit score is below 600, you may not qualify to buy a home. Depending on your credit score, you may or may not qualify for 100% financing. Your credit score is typically based on information from the three major credit bureaus and any time you make a large purchase such as a home or vehicle, your credit will be evaluated which in turn will give the lender an idea of how creditworthy you are; in other words, the likelihood of you paying your debts on time.
If you have less than perfect credit and cannot buy a home yet, there are many ways you can repair your credit. Although, some items such as bankruptcy can remain on your credit report for 7-10 years. Here are a few things you can do to improve your credit:
- 1. If you have a hard time remembering to make payments, set up automatic withdrawals for your payments each month.
- 2. Dispute any items that are incorrect on your report and follow-up to make sure the corrections have been made.
- 3. Sign up for a credit monitoring service to receive alerts of any changes to your credit report.
- 4. Stop using credit cards and look into debt consolidation.
- 5. Contact a nonprofit credit counseling organization that can assist you in understanding your credit report, help you set up a budget, and advise you on how to work towards improving your current financial situation.
Before you even start looking at homes, you need to know how much house you can afford. Once you have been pre-approved, you will have a price range as a guide to bring you one step closer to finding your home. Many people ask what the difference is between a pre-qualification and a pre-approval. Basically, a lender will have you complete a loan application and require more information from you (i.e. pay stubs) in order to pre-approve you. Conversely, a pre-qualification is a very quick process where the lender gathers information from you about your income and debts in order to pre-qualify you. You can receive pre-qualifications over the phone since you do not have to fill out a loan application or have any documentation (i.e. income tax statements) at hand for the lender. Obviously, having a pre-approval will not only speed up the loan process when you find the house you want to purchase, but the seller will take your offer seriously. In fact, many sellers require a pre-qualification or pre-approval letter from the buyer to accompany the contract offer.
Do you have the option to change your lender after they pre-qualify you for a home? The answer is yes. Unless you sign loan documents, you should be able to go to someone else who better meets your needs. Completing a pre-qualification or pre-approval does not tie you down to a specific loan either. If you do not know who to call for a pre-qualification, your real estate agent can recommend someone who can assist you.
Lenders will need various documents from you in order to process your loan so make sure and gather the following documents in advance:
- 1. Three months of pay stubs
- 2. Income tax returns
- 3. Documentation of your debts or recent payoffs of debts
- 4. Gift affidavits
- 5. Bank Statements
Keep in mind, the items required by your lender may vary from the list above; this is only a basic list to give you an idea of what is usually needed from buyers.
Your lender will have a representative at the closing to answer any questions that may come up in regards to the loan. The lender will communicate with your REALTOR® frequently throughout the transaction to ensure everything is completed prior to close.
The first step is to choose an agent to assist you with your home search. There are many ways you can choose an agent to assist you in the purchase of your home. You may have a friend who worked with an agent whom they were pleased with or you may go online and perform a search. As a buyer, you will probably want to work with a real estate agent who has the flexibility to take you out to look for homes. If you can only go out home searching on the weekends, an agent who only works weekdays may not suit your needs. Does your agent listen to what your needs and wants are for your future home? Can you communicate easily with him or her? Is the agent a REALTOR® and do they subscribe to the Code of Ethics? Does the REALTOR® have any designations? These are just a few questions to ask yourself when choosing an agent.
You and your agent are a team so it is important you work well together in order to achieve your goals: finding a home in the price range that meets your needs. Once you find a REALTOR® who can assist you, the process to find a home begins. In order for your agent to represent you, the buyer, an Exclusive Right to Buy contract is signed by both parties. If your agent does not perform to your satisfaction, you should not have any problems canceling the contract and working with someone else who meets your needs. Please click on the link below to view the Exclusive Right-to-Buy contract. Normally, the commission is paid to your real estate agent by the seller. If you purchase a home that is not listed with a real estate company but is instead listed For Sale by Owner, your agent may not receive payment if the home owner is not willing to pay them a commission. If your REALTOR® has been assisting you throughout the home buying process and completes all of the contracts on your behalf, they deserve to be paid. If you choose to view homes that are For Sale by Owner discuss the payment details with your REALTOR®.
There are thousands of homes for sale in the Colorado Springs Area and if you are looking to buy a home right now, there is plenty to choose from. Although you have many options, it can be difficult to find the right home when there is such a high inventory in the Multiple Listing Service (MLS). So how do you find the home that is right for you with so many possibilities to choose from? Start out by making a list of what you must have in the home you are going to purchase. If you want a shorter commute to work, would like to be close to conveniences, or would like to keep your children in the same schools, the location of your home will be important. You may want certain features in the home such as central air, a 5-piece master bathroom, a large backyard, or a spacious kitchen. Do you prefer some floor plans over others? How many bedrooms and bathrooms would you like to have? What price were you pre-qualified for by your lender? These are some questions to ask yourself before starting your list. When making your list, clearly note which items on your list are absolutely necessary and which items you would like to have in a home but are willing to compromise. For example, you may not want to compromise the area of town you live in but you may be willing to compromise on the floor plan or size of the kitchen.
Once you have your list completed, your REALTOR® can match homes to fit your specific criteria and it will make your home search much easier. Of course every home has its flaws, so you may not find the home that perfectly meets your criteria. For example, if you would like to live in a 6,000 sq ft home on 10 acres and only have $200,000 to spend, you are going to have to make some adjustments to your criteria. Ultimately, you do want to choose the right home for you or your family since it is one of the biggest investments you will make in your lifetime. When you narrow down your list and finally decide on the home you want, take the extra time to drive around the area the home is located in at different times of the day. This will give you a better feel for the neighborhood. Meet the neighbors on the street, you can ask them questions and find out additional information about the area since they live there. Please review the links below for more local information. After you choose a home, let your REALTOR® do the rest! Your agent can negotiate on your behalf and carry the transaction through to closing.
If you would like to begin your home search today, please contact me to send you homes that meet your criteria on your own personal website or to answer any questions you may have.
Once you find the home you would like to place a contract offer on your REALTOR® will help advise you on the price that is best to offer on the home. Your REALTOR® can complete a market analysis on the area over the past 6 months to ensure the price you are offering for the home is not too high or so low that the seller outright rejects the offer. When you submit an offer it is normally accompanied with a pre-qualification letter and earnest money as collateral to "hold" the house. The earnest money is usually 1% of the asking price. If there is another interested buyer for the same home and they also decide to submit an offer, then you may want your REALTOR® to give the seller your best offer since you are competing with another buyer for the home you want. Often times, it is easy for the buyer to allow emotions to interfere during the negotiation process so it is pertinent to have your REALTOR® handle the negotiating for you.
Since REALTOR® are required to subscribe to the strict code of ethics, you can rest assured that they will not inform the seller of how much you are willing to pay and will inform and advise you throughout the negotiation process. Once you submit your offer, the seller may decide to counter your offer with a higher price. At this point, you have a few options: you may reject the seller's counteroffer and walk away, accept the seller's counteroffer, or counter the seller's counteroffer. If the buyer and seller agree on the purchase price and terms of the contract, the transaction moves forward, otherwise, the buyer's earnest money is returned since the buyer and seller did not mutually agree to the same purchase price and terms. The buyer should have a second choice as a backup in the instance that an offer for their first home does not go under contract. Once you are under contract for the home you would like to purchase, your real estate agent will ensure all of the deadlines are met and any issues are handled prior to closing.
Inspection and documents:
There are various types of inspections available to home buyers including but not limited to a general home inspection, radon test, structural inspection, meth test/inspection, termite inspection, sprinkler system, sewer line inspection. Buyers make the decision as to which inspections they would like to have performed and choose the inspector of their choice. After the inspection(s) takes place, the inspector will fill out a report and give you and your agent a copy. Once you review the inspection report, you can decide what repair items are necessary for the seller to fix in order for you to continue on with the purchase of the home. Your real estate agent will then submit an inspection objection form to the seller's real estate agent with all of the items in the home you the buyer, would like to be repaired, replaced, or addressed. One common inspection item is for the furnace to be cleaned and serviced by an HVAC certified professional.
The seller has the option to repair all of the items requested by the buyer or the seller may choose to repair some items and not others. The seller can pay the buyer at closing for the costs of the repairs after a professional estimate for the repairs has been completed as another alternative and the amount has to be reflected on the settlement statement. All inspection issues must be resolved between buyer and seller by the deadline set in the contract in order to move forward. There are instances where the buyer and seller cannot compromise and the buyer may then choose to get out of the contract and begin their home search again. Conversely, the seller has the right to refuse to correct the inspection items and can even terminate the contract. The inspection process is one of the many areas that a real estate agent assists their buyer therefore; it is pertinent to have a REALTOR® represent you in this type of real estate transaction.
Inspection issues can become problematic if the buyer's homeowner's insurance coverage is negatively affected. For example, if the home requires a new roof and the seller is unwilling to replace it, buyers need to be aware that their insurance company may not insure the property due to the bad roof and refuse to replace the roof in the future since it was a problem prior to acquiring coverage. The insurance premium may also be higher if there have been multiple claims filed on the property over the past five years, if the property is older in age, or if the property is located in an area where claims are likely to be filed (area commonly known for flooding, hail damage, hurricanes, etc...). On the other hand, if the home has a security system, smoke alarms, or is located near a fire department, the insurance premium may be lower. It is important to understand what your insurance policy covers (natural disasters, theft, liability, etc...) not only so you can obtain a separate policy/additional coverage (i.e. flood insurance) if necessary but, also to avoid unpleasant surprises in the situation something does occur to your home or on your property such as an accident, theft or fire. Buyers are encouraged to take time to compare insurance providers in order to find the right one that meets their needs.
The seller is also required to provide the buyer with various documents before closing which include but are not limited to: Disclosures, Title Commitment, and Common Interest Community documents. It is essential to review each of these documents with your REALTOR® as they include important information about the home for the future homeowner.
One of the important documents you will see is the Seller's Property Disclosure where the seller indicates the condition of the interior of the home including appliances, exterior of the home including the roof, and includes information regarding the materials used in the home, structural conditions, water and sewer, legal issues related to the property, and much more. If the buyer reviews the seller's property disclosure and observes that the seller checked "yes" for existing structural problems with the home, the buyer may reconsider moving forward with the purchase of the home or hire a structural engineer for a professional opinion. Some of the other disclosures required include but are not limited to: the lead-based paint disclosure (required for homes built prior to January 1, 1978), the square footage disclosure, and the Colorado mold disclosure. Keep in mind disclosures should not take the place of a professional home inspection!
The second important document the buyer will receive is the Title Commitment for the home. The seller purchases title insurance which in turn, insures the buyer with potential problems related to the title. Unfortunately, title insurance may not cover everything such as unrecorded mechanics' leans or unrecorded easements. It is important for the buyer to require the seller to insure over the standard exceptions in order to cover additional matters related to unrecorded agreements, survey matters, or gap period (the period between the title commitment being issued and closing day). Please note, even if a seller agrees to insure over the standard exceptions, the title company may not cover some matters in the title insurance policy. Therefore, it is important to review the title commitment and seek legal advice regarding the policy's coverage.
If the home is not part of a Common Interest Community (CIC), information regarding the covenants for the home or area can be found in the title commitment. If the home is located in a neighborhood with a Home Owner's Association (HOA), the seller is required to provide the buyer with all of the CIC documents pertaining to the owner's association including declarations, bylaws, budget, financials, etc... If the buyer objects to something related to the HOA (i.e. monthly dues), they can terminate the contract in writing to the seller by the allotted deadline.
There are many documents related to the purchase of a home and it is important for the buyer to carefully review them with the assistance of their REALTOR® and attorney.
Note: The information presented above in regard to important documents related to the purchasing of a home is not intended to provide legal advice for buyers but instead, is for informational purposes only.
Your lender will schedule for a licensed appraiser to take a look at the property and make sure it's value is worth the contract purchase price. For example, if you and the seller agree to a purchase price of $265,000 and the appraisal comes in at $255,000 the lender is not going to loan the buyer $265,000 since the appraisal came in $10,000 lower than the purchase price. The seller has the option to lower the price by $10,000 for the buyer or the buyer can make up the difference by bringing the cash to closing. Otherwise, the transaction cannot close as it is contingent on the appraised value of the home.
If you have FHA or VA financing, the appraisal process varies from conventional appraisals. Both FHA and VA have their own appraisers. The property must meet specific criteria or standards with both FHA and VA appraisals. For example, if the exterior paint is peeling on a home built in 1975, the appraiser will likely make the FHA appraisal subject to the exterior being repainted. If the seller refuses to address the problematic areas of the exterior requiring attention, the buyer may not be able to obtain the FHA loan as the home is not in compliance with FHA standards. VA appraisers inspect the property to ensure that it is safe (i.e. foundation, interior, and exterior) in addition to calculating its appraised value. The Department of Veterans Affairs issues a Certificate of Reasonable Value which indicates the maximum value that can be loaned to the borrower through a VA mortgage. The appraisal is normally paid by the buyer and is often added into the closing costs.
One or two days before closing, a walk-through of the property is scheduled. The buyers walk through the home with their REALTOR® and make sure the condition of the home is as agreed upon in the contract. Is the home clean? Are all of the included appliances and light fixtures or ceiling fans still in the home? Are there any items that are missing, broken, or left behind by the seller? Were inspection items and repairs addressed by the seller? The walk-through does not take very long and leaves the buyer assured of the home's condition before closing. If there are any issues that arise out of the scheduled walk-through, your agent will contact the listing agent. The day and time of closing are agreed upon by all parties to the contract and closing normally takes place at a title company. The title company will release closing figures displayed on a HUD-1 Settlement Statement that itemizes closing costs and fees for both the buyer and seller. Common fees that are listed under buyer closing costs are listed below:
ITEMS PAID IN RELATION TO THE LOAN:
Loan Origination Fee: This fee is a charge for originating or creating the loan
Loan Discount: This fee is paid to the lender if you choose to "buy down" the rate. One discount point is equal to one percent of the loan amount.
Appraisal Fee: This is the charge for the appraisal of the home purchased.
Credit Report: This is the fee charged to buyer for obtaining a credit report.
Lender's Inspection Fee: Fee charged for inspections completed on the request of the lender.
Mortgage Insurance Application Fee: Cost for processing mortgage insurance application.
Flood Certificate: Cost of flood certificate ordered by lender to find out if home is located in a flood area.
Application Fee: Fee for the loan application
Tax Service Fee: One-time payment to lender. When taxes are due annually, a company withdraws from the escrows and pays the taxes. Typically the fee is $70 to $90. This fee cannot be paid by the buyer if it is an FHA loan.
Processing Fee: This is the charge for processing the loan - collecting your application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.
Document Preparation Fee: This is the fee lenders charge for preparing the loan documents.
ITEMS LENDER REQUIRES TO BE PAID IN ADVANCE:
Interest: Interest is prepaid for your mortgage loan at closing and is prorated. It is figured from the day of closing to the first monthly payment; the number of days is multiplied by the amount of interest charged per day. If you close at the end of the month, your prepaid interest will be lower than if you close on the first day of the month.
Mortgage Insurance Premium (MIP): This fee is not common with every loan. If you obtain FHA financing, this item would appear on your closing costs. For FHA loans, the upfront MIP is normally 1.75% of the loan amount and is prepaid to the lender at closing.
VA Funding Fee: This fee is only required to be paid up front with VA loans. The fee with no down payment is 2.15% (fee for initial VA loan) or 3.3% (fee for subsequent VA loan).
Hazard Insurance Premium: Hazard insurance prepaid for the entire year up front at closing. This protects you and the lender from loss due to fire and natural hazards.
Flood Insurance: This is charged only if the lender requires it.
Real Estate Taxes: Lender requires the full year of property taxes paid up front at closing (a portion of this amount is paid by seller).
Hazard Insurance: Lender will usually escrow 2-3 months in reserves for hazard insurance costs.
Taxes: Lender will usually escrow at least 3 months of taxes for reserves for property tax costs.
Settlement or Closing Fee: The title company's fee for handling the closing and the monies for the lender, agents, buyer, and seller.
Notary Fee: This is the fee of the notary.
Attorney Fees: Charge for legal services
Title Insurance: Insures the title on the property and protects the buyer and lender. This is where the cost of the owner's policy would be included.
Endorsements: Additional provisions or safeguards to insure and protect lender (Form 100, Form 130, Gap Coverage, Extended Coverage, etc...).
Overnight/Courier Fees: Charge for the overnight of the signed loan or other settlement documents.
Wire Transfer Fees: Charge for wiring monies.
Tax Statement Fee: Charge for researching any unpaid or delinquent taxes on a property.
Loan Closing Fee: Amount charged by the title company for closing the loan documents for the lender.
GOVERNMENT RECORDING AND TRANSFER CHARGES:
Recording Fees: Charge for recording the new information with the El Paso County Clerk and Recorder.
City/County Tax/Stamps: Unavoidable government tax for the transfer
State Tax/Stamps: Unavoidable government tax for the transfer
ADDITIONAL SETTLEMENT CHARGES:
Survey: Charge for survey of property (if Survey was ordered)
Pest Inspection: Charge of pest inspector (if Inspection was ordered)