Steps To Ownership
Here's a summary of the steps that you'll take from beginning your home search to closing. If you're a first-time home buyer, don't be overwhelmed by the number of items listed or their complexity. Your real estate team will guide you through this process. Many of the tasks are handled directly by the team. They'll instruct you as to exactly what you must do and will answer any questions that you might have. Don't forget, they've gone through these procedures many times before.
NOTE: All dollar figures listed in this section are estimates only and will vary due to many factors including which region of the country you live in.
1) Using the loan and pre-qualification functions in the software, determine the price range of the home that you can afford. Discuss this with me, if you're planning to hire me as your Buyer's Agent. Ask me to show you houses in this range in the communities that you'd like to live in. Your agent is a good source for inside information on the benefits of the communities in her city. For the most part, you should count on spending 2 to 4 weeks looking at homes with your buyer's agent. This will give you enough time to look at plenty of homes and make your decision. If you take longer than a month, you risk the chance of losing a home that you would have liked to make an offer on, and you'll have to start the process again.
During this time period, it's also a good idea to get "preapproved" for a loan. This is different than a pre-qualification. The bank or mortgage company actually does a credit check for a preapproval. Having a preapproved loan gives you an advantage when making an offer in step 2. If you need a lender, check out my Agent Info page.
2) When you find a home that you want to purchase, the next thing you do is make a bid through me. I'll provide you with a standard residential sales contract. I can also recommend a good real estate attorney, if you need one.
The sales contract will most likely contain some contingencies on riders attached to the contract. Examples of some contingencies are: your obtaining financing for a specified rate and term, selling your current home, obtaining a satisfactory (to you) home inspection. I or your attorney may include other items.
This offer to purchase a home will be accompanied by earnest money of from $1,000 to $10,000 or more, depending on the price of the home. This indicates to the seller that you are making a serious offer. The earnest money is normally in the form of a check made out to the other real estate agent (not the seller). It is deposited in a trust account and will be applied to your down payment. If the sale is not finalized for a reason beyond your control (i.e., due to one of the contingencies), the earnest money will be returned to you.
Subsequent offers and counter offers may take place until all terms are agreed upon by both parties.
3) Have the home inspected by a professional, bonded inspector. (NOTE: The buyer normally pays for the home inspection - it will run somewhere in the area of $200 - $500. If you hire me as your Buyer's Agent, I pay for the inspection. Check out my Agent Info page for information about the home inspection team I recommend). The inspection usually takes place within 5-10 days after signing the contract. If there are any major flaws in the home, they can be dealt with before you apply for the mortgage. If these issues can't be dealt with to your satisfaction, your contract will allow you to back out at this time.
4) Apply for a mortgage. NOTE: Check the loan/mortgage and mortgage prequalification functions provided in the software. You likely have to pay a loan application fee of up to $350 (if you use the lender I recommend, Karin Fischer of Broker's Mortgage Group, she will refund your application fee at closing). Some lenders also charge you an origination fee of one point. (One point refers to 1% of the loan amount. Points are paid to the lender or mortgage company to cover their cost for the up front processing of the loan.) You may decide to "lock in" the rate at this time, or the lender may allow you to do it at a later point in time. (If you have been preapproved for a loan, some of the steps in this process will have already been completed.)
When you apply for a mortgage, what are some of the items that are needed? (These may vary depending on the lender.)
- Social Security cards & drivers licenses
- Residence addresses for the past 2 - 5 years
- Your landlord's name and address
- Names and addresses of each employer (past 2 - 5 years)
- Your most recent pay stubs
- Two years signed tax returns & W2's
- Names, addresses, account numbers, and balances of all checking, savings, credit cards, and installment loans
- Two most recent bank statements on all accounts
- Information on any stocks or bonds you own
- Details of all real estate owned
- Copy of fully executed sales contract, riders, and listing sheet for your current home (if applicable)
- Divorce decree & child support agreements
- Application fee
5) You will receive a "good faith" estimate of the closing costs from the lender. This is called a "RESPA Statement". It includes the costs for: points, appraisal, title search, title insurance, survey, recording of deeds and the bank's attorney fees. Some of these items may be included in the points that they charge.
6) At this time, there are several other items that may need to be done before the lender gives final approval to the mortgage:
Title Search - This is usually required by the lender. It should be stated in the sales contract that the seller provide you with clear title (one without any liens against it). This may cost you about $200. Check with me for the standard charges.
Title Insurance - The lender will also require this for their own protection. It's an insurance policy that covers any problems with the title even though the title company stated it was clear of problems.
Buyer's Title Insurance - This covers you, the buyer, in the event that the title is not clear. This is usually optional, but recommended.
Mortgage Insurance - Again, this is something that most lenders require if your down payment is less than 20% of the purchase price (it's more common for your down payment to be less than 20% -- if you want to know what kind of down payment you need, ask me). It's a protection for the lender in case you default on the loan.
Homeowner's Insurance - This is an insurance policy that covers the cost of repairing or rebuilding your home in the event of a natural disaster. Obviously, this is beneficial to both you and the lender. This is something that you will shop around for on your own. You can start with your auto insurance company. If you need a referral to a local insurance agent, I can provide you with one.
With the exception of the homeowner's insurance, all of the above costs plus any additional ones such as the appraisal, survey, recording of deeds and the bank's attorney fees will be included in the RESPA provided by the lender.
Typical Closing Costs, with no points or origination fee, range from:
Conventional Loans: $1900 - $2200:
FHA Loans: $1200 - $1500:
VA LOANS: $1100-$1400
(Prepaid insurance, homeowner's association fees, taxes, or other prepaid fees are not included in figures. Also, rates are subject to change throughout the week and even the day. Call Karin Fischer, Brokers Mortgage Group, at 303-523-5534 for up to the minute rates, or for any questions you have about mortgages.)
Many other programs are available for buyers, including interest only loans, no documentation loans, and loan combinations designed to eliminate having to pay Mortgage Insurance. Check with me before choosing your lender. (I receive no fee from referring you to a good lender, my only interest is making a reputable mortgage broker available to you. In Colorado mortgage brokers are unregulated, making it critical that you use an experienced, ethical local lender, if at all possible.)
The amount of points that you will have to pay depends on the lender's policies, the amount of your down payment, the term and the amount of the mortgage.
This means that you should count on having this much cash available besides the amount of your down payment and the amount of points paid to the lender. The down payment is usually a minimum of 5% to 10% of the selling price. But as stated above, you can even buy with no down payment if you don't mind spending more on your monthly payments.
So, how much will this cost? Let's take an example of a $250,000 home. Suppose your lender allows you to put a 5% down payment on the house, and your closing costs will be between $2,000 and $2,500, and the amount of points paid is 1.5% (of the loan). This would come to:
Down payment $12,500
Closing costs $2,000 to $ 2,500
Points (1.5%) $3,563
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Total $18,063 to $18,563
7) If your mortgage is approved, the lender will send you a letter of committment. If the following information is not provided, I will request an exact accounting of the closing or settlement costs and the required documents that you will need to bring to the closing.
8) All parties will agree on a closing date (although the closing date is determined by you and is part of the offer, some flexibility will be required). For the closing, here's a list of some of the items that the three parties are responsible to bring.
The lender: RESPA, Truth in Lending Disclosure Statement, the mortgage, the mortgage note, application for any escrow accounts required for the buyer, and the check for the seller.
The seller: property deed, final utility bills, final tax bills, any documents required to clear the title, and keys to the house.
The buyer: cashier's check for the remainder of the down payment plus the balance due for any other payments (you will be informed of the amount, but it may not be until the day of closing), any documents required by the lender, you may need your checkbook for small dollar amounts, and if you're using me as your Buyer's Agent, I'll be present. And if you have an attorney, he or she will need to be present, and will need to review all the documents prior to signing.
9) You will select a walk-through date. This is your opportunity to inspect the home one last time before closing. It is usually scheduled the day of or the day before the closing date.
10) CONGRATULATIONS!!!!! Closing day has arrived. After signing numerous documents and taking care of final payments, you will become the proud owners of your own home.