Colorado Homes - Buyers Guide
Heading Home - Homebuyers' Seminar
Here is a series of articles to begin your acquaintance with the process, and with some of the issues you need to be familiar with if you are to be comfortable with your Colorado real estate transaction.
- "I need a significant down payment to buy a home"
Not true - 100% financing programs are available
- “Payments are so much more than rent, I can’t afford it”
Interest is tax deductible-larger year end refund
With new programs payments can be as cheap as rent
- “It’s too soon to start, I am not buying for 4-6 mos.”
Why Buy Instead of Rent?
- Buying a home can be a wise investment.
- Typically homes increase in value over time.
- You can build ownership interest - this is known as equity
- Interest paid on a home mortgage is typically tax deductible*.
How to Begin? It's as Easy as 1, 2, 3.1. Put together a personal "home team" of experts:
An experienced real estate agent
A knowledgeable loan officer
2. Apply for mortgage pre-approval.
3. Define the Home Search.
4. Look at Property
5. Write an Offer
How Much Home Can I Afford?
- To determine your maximum mortgage amount, lenders look at:
Your credit history
Available cash for down payment and closing costs
Your existing debt and financial obligations
Job History - 2 years in same line of work
- Your maximum mortgage amount, plus your planned down payment, equals your home-purchase price range.
How Important Is My Credit?
- A history of paying monthly payments on time indicates you are likely to make mortgage payments on time.
- Your credit score, (e.g., a FICO score) can be a factor in the kind of mortgage program for which you may qualify.
- Your credit history can also affect:
The amount required for a down payment
The amount of money you can borrow in relation to your income
The interest rate you are offered
- If you haven't already, obtain a copy of your credit report.
How Much Do I need for a Down Payment? Nothing!
- Today's flexible mortgage programs make down payments less of a challenge.
- Some homebuyers may be eligible for down payment assistance.
- You may be able to buy a home with very low or no down payment.
- Loans with down payments of less than 20% typically require mortgage insurance.
- Most programs also require funds equal to 1-2 months' loan payments in reserve after closing.
What About Closing Costs?
- Generally, closing costs equal between .5% to 3% of the home purchase price.
- "Prepaids" must be collected at closing to cover the future months' taxes, interest and insurance.
- Most loan programs allow you to finance your other closing costs.
- Some programs alow all or partial closing costs to be aid by home sellers or other sources.
How Large a Loan Can I Be Approved For?
- Lenders use a debt-to-income ratio to determine the loan amount for which you may qualify.
- Typically, the anticipated housing payment is compared to gross earnings and debt.
- Many loan programs offer expanded guidelins that qualify applicants for higher loan amounts.
- Once you know your maximum loan amount, it's up to you to decide if it's right for you.
What Does My Mortgage Payment Include?
- Usually your monthly mortgage payment is made up of four amounts - often referred to as PITI:
- Certain funds may be held in an escrow account to pay tax and insurance bills, as they come due.
New, More Flexible Loan Programs
- New programs and enhanced features are continuously developed to help make home ownership more accessible.
- 100% Financing Example vs. Rent ($1000 rent)
$200,000 Purchase - $160K 1st/$$40K
$750 1st + $200 2nd + $45 Ins. +$90 taxes = $1085
30% tax bracket. $950 of payment is tax deductible or $11,400 yr. Save
$3240 yr. or $285 mo. (equiv. to $800 rent pmt.)
With tax benefits... CHEAPER THAN RENT!
Which Type of Loan is Right for Me?
- By working with an experienced mortgage specialist, together you can select a program that best suits your budget needs and financial goals.
- ALWAYS, ALWAYS, get a Good Faith Estimate (GFE)
A lender not willing to provide is not one to work with
Make it a Point to Ask About Points
- Always ask if the quoted interest rate reflects payment of points.
- Ask if there is a broker fee (often not disclosed)
- One point equals 1% of the loan amount.
- Often, you can lower your interest rate by paying a fee in points.
- The more points you pay, the more you can discount your interest rate.
- Remember the cliché, "If it's too good to be true, it probably is."
Meet with the Realtor - Define the Search
- Location - Neighborhood, schools, churches, shopping, busy streets & highways, access points, etc.
- Features - Number of bedrooms $ bathrooms, garage, fireplace, appliances, heating system, patio or deck, landscaping, etc.
- Neighborhood Amenities - Swimming pool, tennis court, clubhouse, homeowner covenants, parks, etc.
- Style of Home - Ranch, two-story, tri-level, four level, etc.
Look at Property
- Compare Properties
- Narrow Down Your Options
- Team Play with Your Realtor
Be sure to communicate things you like and don't like about the property so your Realtor can perform a more specific search.
- Finds the House that meets your needs
Keep in mind that your first house probably won't be your dream house but will set you up for that long term success.
- Transaction Broker
Assists the Buyer or Seller throughout the real estate transaction. Considered the 'dating relationship' and Realtor acts as a facilitator. No written agreement is required.
- Buyer's Agent
Works solely on behalf of the Buyer through real estate transaction. Acts as an advocate and is able to make advisements as to price, inspection items, etc. Requires a written agreement.
- Listing Agent
Works solely on behalf of the Seller through real estate transaction. Acts as advocate and requires a written agreement.
Write an Offer
- CMA (Comparative Market Analysis)
Your Realtor will prepare a CMA to determine the fair market value based on similar properties that have recently sold in the area.
- Determine Your Price
Typically your offering price is derived from the CMA. Depending on the state of the market, this price may be below or at the listing price.
- Select Closing Date
Closing dates vary from 30-90 days.
- Earnest Money
Earnest money secures the property and contract. Amounts vary but be prepared to write a check when submitting the offer.
- Pro-Buyer State
Colorado Real Estate Commission writes and regulates the Colorado contract. It is designed to protect the buyer through several different escape clauses.
- Escape Clauses (5)
Title (free & clear)
- Make Offer
- Title/Title Objection
- Property Insurance
- Loan Commitment
You become the proud owner of your new home!
The Seminar Is Done But You've Just Begun
- You can now approach your home purchase as an educated consumer. Talk to prospective lender about key points:
A copy of your credit report
Down payment and closing cost options
A program designed to meet your needs
- Meet with Realtor and define criteria and begin the fun part!