the path to buying a home in the highlands ranch/ metro denver area

the path to buying a home

          This is a general overview of how to purchase a home in the Metro Denver area.  The number of  “if this”, “then that” scenarios possible in any given transaction are too numerous to describe.  Every transaction is different and each has its own nuances.  One of the reasons why using an experienced real estate agent to help guide you in this process can be invaluable.  Using a real estate agent to help you buy a home does not cost you anything – the agent is paid at closing through the seller’s side of the transaction.

          You will receive a solid understanding of the process and many of the possible outcomes from decisions that are made along the way.   The information provided below is regarding buying a re-sale home.

          If your goal is to buy a “New Construction” home, then click here.  While there are some similarities to buying a re-sale home, it is a different type of  transaction.

          Continue below for all the steps to buy a re-sale home.

          ***** I am not an attorney and am not giving any legal advice about the Colorado Contract to Buy and Sell Real Estate.  I am giving cut and dry examples for explanation purposes only.  Every transaction is different and may not be as cut and dry as my explanations.  If you have any legal questions regarding real estate in Colorado, please contact an attorney. ****

1. Loan Pre-Qualification letter

          In this step, you contact a lender and give them an overview of your present financial situation – how much you earn, how long you have been on the job, how much you have in the bank,  how much debt you have, etc…  This can be done on-line, over the phone, or in person.  It is encouraged that you try to speak with at least 2-3 lenders. 

          With this information, the lender will be able to give you a price range in which you qualify.  This price range will be based on different mortgage products that they offer (fixed rates / adjustable rates / FHA / conventional / jumbo / downpayment / term of loan, etc…)  Ultimately, there are a lot of ways to finance a mortgage, but you don’t need to make a decision at this point.  As you progress in the process, we can weigh the pro’s and con’s of each mortgage and make an educated decision on the best one .

          The lender will then issue you a “Pre-Qualification” letter.  This letter is a start.  It does not mean that they will lend you this money – there is a lot more to this process and I will illustrate why the “Pre-Approval” letter is the ultimate goal in #3.

           You now know that you are a viable candidate to get a loan, the price range that you can qualify, and an idea of your monthly payment.

2. the search

          The most exciting part of the process!!!  

          Let’s define the parameters to start – home, condo, bedrooms, bathrooms, school district, area/ areas, basement, garage, yard, etc… – this can be an extensive list but it insures that you are seeing what you want to see.  Know that this is not set in stone – the parameters can be ever changing.  

          Do you want to search on your own? – click here to see how you can do that.

          Do you want to be notified the moment a home hits the market? – click here to see how you can do that.

          Once you start seeing homes that you like, then it’s time to go out and look in person.

          Is there a typical number of homes that I need to see before making an offer?  No.  It will boil down to the question, “have I found the right home for me?”  Sometimes it is 1 home, but more likely 10-50.  There is no magic number.

          How will I know when I have found the home for me?  You just will.  Buying a home is an emotional process.  Typically, there is a mixture of goosebumps when you are in the home followed by the inability to stop thinking about the home after we have left.

          This step may look short on this website.  It can take a few weeks to a few months depending on the inventory out there.  While we are out looking at homes, the lender is working on elevating your loan status from the initial “Pre-Qual” letter to the desired “Pre-Approval” letter.

3. Loan Pre-approval letter

          Regardless of the type of real estate market (buyer or seller), you want/need to attain this status to be deemed a viable buyer by listing agents.  This letter makes you look like a strong buyer.  Not only does it help greatly in the negotiation of the ultimate purchase price, but it may even be the sole reason that you beat out another party if you find yourself in a bidding war.

          For a lender to issue a loan “Pre-Approval” letter, they have to feel very confident that your loan will get funded.  The lender will do a number of things to get to this point of confidence including pulling your credit, verifying your employment, verifying your down payment to name a few.  At this point, your are as close to a cash buyer as you can get.

          Of note, the “Pre-Approval” letter does not mean that you are fully approved yet.  You have to be under contract to purchase a home before the final “loan commitment” can be issued.  The lender will want to make sure that the home appraises, that there are no issues with the title work as a couple of examples.  Usually, you will attain “loan commitment” 3-7 days prior to the closing date if no issues arise.

4. the offer

          The day has come where you have found the home that gives you goosebumps.  At this point, we take some extra time and discuss all of the pro’s and con’s of the home – the construction, the location in the neighborhood, the price, and much more.  We want to make sure that there are no major visible flaws that will affect re-sale value down the road.  We will vet the home further when you are under contract as you will see in Step #6.  I will pull sold comparables to make sure you are not overpaying for the home.  Also, I will call the listing agent to see if there is any other information I can get to give us an advantage.  

5. the negotiation

          Once the offer is in, we wait.  Typically, there are (3) ways a seller will respond.

          1. Accepted Contract – in this case, the seller has not only accepted your price, but all other accompanying terms of the contract.

          2. Counterproposal – this occurs when the seller want to negotiate on something .  Typically, it is the price, but it can also include                                                          contingency dates, inclusions, exclusions, seller paid fees, possession date, etc…

          3. Rejected Offer – the rarest of them all, but the seller has the right to reject offers if they so choose.

           Ideally, having the contract accepted without any changes is what we would like to see happen.  Oftentimes, the contract is countered.  If this is the case, we will walk through any changes the seller made and discuss them at length.  If the changes are something you can live with, you sign the counter and are under contract.  If we are close, we can always counter the counter to see if we can get more agreeable terms.  Or, if we are too far apart and unable to get any closer, then you just walk away.

6. under contract

          Once we are under contract, the real fun begins.  When I started in real estate , the contract was 4 legal sized pages.  Today’s contract is about 15 legal sized pages.  Simply put, the contract is date driven.  Once you get past the parties involved, the address and the inclusions / exclusions, you come to Section #3 which spells out all of the contingency dates.

         The majority of the remainder of the contract explains the legal nuances of all the contingencies laid out in Section #3.  If dates are not met, it can result in the loss of earnest money, termination of the contract, or the loss of $1,000’s.  Dates need to be met or amended if it doesn’t look like you will be able to meet them.

          When I submit an offer for a buyer, I go through the whole contract in detail.  Below, I have created an accordion list with a generic explanation of the dates.  Click on the down arrow to view each explanation.

          Earnest money is money that you pay by this date into an escrow account.  Earnest money is negotiable, but it typically is around 1% of the purchase price of the home.  It means that you are in earnest to buy this house. 

          If you default on the contract, you can lose your earnest money. 

          If you terminate the contract per any of the contingencies, then you get the earnest money back.  An example, upon inspection, your inspector finds major structural damage to the home.  You can terminate the contract and the earnest money will be returned.

          If you close on the house, the earnest money is used as part of your downpayment or closing costs. 

          If you miss this deadline, the the contract may terminate.

           There are multiple title deadlines that need to be met.  

           Title insurance in its most basic sense is a policy that assures the buyer that the property they are buying is free and clear.  Free and clear of any liens or defects.  Are there any extra monetary obligations attached to the house?  Did an unpaid roofer attach a mechanic’s lien to the house?  The title insurance gives you peace of mind that the only obligation that you will have on the home is your mortgage (unless you are a cash buyer).

           If the seller is unable to obtain title insurance, you have the ability to terminate the contract and get an earnest money refund.

          These documents only apply to homes that are part of an HOA (Homeowners Association).  So, in Highlands Ranch, they apply.

          There are a multitude of documents including Financial Statements, Minutes, CC&R’s (Covenants, Conditions & Restrictions), Articles of Incorporation, HOA Bylaws, Reserve Studies, and more.

          Is the HOA in good financial shape?

          Are there any restrictions for the number of, or the weight of pets?  

          Does the future of the HOA look good?

          Just a couple of examples of what we want to look for in the documents.  It can be a total of a few hundred pages, so always a fun read.

          The bottom line here is that if there is anything that does not work for you, you can get out of the contract and get your earnest money back.  An example, if the HOA only allows for 1 pet and you have 2, is this the community for you?

          The seller provides this document to let you know of any material defects in the home.  The seller must answer this document honestly and to the best of their knowledge.  

          Is there any structural damage?

          Did the roof leak in the past and was it fixed?

          Plumbing issues?, Electrical issues?

          The bottom line here is that if there is an issue after you move in and you can prove that the seller had knowledge of the issue, then you have a case for remuneration.  Also, if there was an issue in the past, it is nice to point it out to the inspector so they can spend some extra time assessing the repair.

          The loan objection is a benefit to the buyer.  

          This is the date that you have to have a loan commitment from your lender , otherwise your earnest money can be at risk.

          If you are unable to get a loan commitment by this deadline and unable to amend this deadline to a later date, you can terminate this contract and get your earnest money refunded.

          The appraisal deadline is when the appraisal needs to be completed.  Three potential outcomes here:

           1. The ideal situation is that the appraisal comes in at value with no conditions.  There is nothing to do here  – all is good.

          2.  The appraisal comes in low.  At this point, it becomes a negotiation.  Ideally, you want the seller to change the price to the appraised price, but he/she doesn’t have to.  The seller may come back and say full price or nothing.  Is it possible to find a middle ground suitable to both parties?  If not, and you are unwilling to stay at the original price, you have the ability to terminate the contract and get your earnest money back.  Also, this lower price may inhibit your ability to get a loan commitment as it will change the numbers for the transaction, so keep that in mind.

          3. The appraisal has conditions.  Again, this becomes a negotiation.  A condition is something that the appraiser saw when walking the home that is a red flag to the lender.  An example might be no handrails on the stairs.  While this may not be a big deal to you, it can be depending on the lender.  This item will need to be corrected and the appraiser will have to go back to sign off on the work being done prior to your ability to move forward.  You can terminate the contract and receive your earnest money back if the condition is not remedied.  You will be unable to get a loan commitment without a valid appraisal.

          Typically, the biggest  hurdle in any transaction.

          Here you hire an inspector, or multiple inspectors to assess the physical condition of the home.  You will want to have the home inspected from the roof to the basement and everything in between.  Other items you can have inspected are the radon levels, and the sewer line.  

          The inspection is huge as any present / future repairs necessary could amount to a lot of money.

          A new sewer line can cost anywhere from $7,500 – $15,000+ for a replacement.

          Roofs can cost $7,500 – $30,000+ depending on size and type of roofing material.

          It can all add up.

          The inspection begins another negotiation.  We present the listing agent  a list of items that we would like to be completed.  Three typical outcomes:

          1.  Seller says no.  They will do nothing.  You can say okay and move forward.  Or, depending on the extent of repairs necessary, you can terminate the contract and get your earnest money back.

          2.  Seller says yes.  Nothing to do here.  All is good.

          3.  Middle ground.  Seller will do a number of items on the list, but not all.  Or, seller offers to pay a certain dollar amount towards your closing costs and you agree to take care of the inspections items.

          This one is straightforward.  This is the day that you come to the title office with your down payment and sign the closing documents.  After the loan funds in the title company account, you are a homeowner.

          Sometimes you get possession of the home upon successful closing, so this would be the same as the closing date.

          Other times, the seller requests a certain amount of time to be out of the home after closing.  This is negotiated when you are submitting your offer.  This specifies the date and time that you can take possession of the home.  Typically, anywhere from 24-72 hours, but can be more depending on the situation.

7. closing

          All of the contingencies have been completed and the loan has been fully approved.  

          Closing typically happens at a title office.  A closing will last about an hour.  You will need to bring a valid ID (License, Passport).  A bunch of documents will be signed.  Cookies will be eaten.  Questions will be asked and answered.  Keys will be handed over.  That is it.  Congrats!!!

8. final thoughts

          I have given you a thorough explanation on how the re-sale home buying process works in the Highlands Ranch / Metro Denver area.  

          As I have mentioned throughout this informational piece, there are many nuances to each transaction.  If you don’t know what you are doing, things can go sideways quickly.  There are a ton of if / then scenarios that pop up on any given transaction.  The real estate transaction, unfortunately, is not as cut and dry as my explanation makes it look.  But, the process can be made a whole lot easier.

          Using an experienced real estate agent is akin to using an experienced white water rafting guide when going through the rapids.  The guide knows where the rough water is and where the sink holes that bog you down are.  Due to their experience on the river, they can guide you through these spots and make your trip smoother and a much more enjoyable experience.  

          I have helped hundreds of buyers navigate the real estate market since 1996.  I know the buying process inside and out and make it as stress free, headache free, and easy as possible for you to find your dream home.  Also. hiring a real estate agent to help you find a home does not cost you anything and can even save you thousands.  Call Sean Patrick Reilly @ 303-520-8700 when you are ready to get started.  

          Or, choose one or both of the links below to get started on your home search today.