Hire A Top Class Real Estate Agent Who Will Invest In Your Future
BUYERS: 12 Step Guide to Buying Your Home in Colorado Springs
- Step 1: Make Sure You’re Ready to Buy
- Step 2: Figure Out How Much You Can Afford
- Step 3: Decide What You Want to Buy
- Step 4: Find a Realtor® that is Right for You
- Step 5: See What’s Out There
- Step 6: Sell Your Current Home
- Step 7: Add a Title Company to Your Team
- Step 8: Make an Offer
- Step 9: Arrange a Mortgage
- Step 10: Find a Home Inspector
- Step 11: Close the Deal
- Step 12: Move In
Step 1: Make Sure You’re Ready to Buy
If you’re thinking of buying a home, this 12-step plan will help to guide you in the right direction. But before we jump right in, you have to make sure three things are ready: you, your bank account, and the real estate market.
Are you ready? Be sure.
Owning the roof over your head will bring you great pride, but with that pride comes accountability and sacrifice. There’s the obvious financial responsibility, but your home will also require constant care and upkeep. That’s what real pride of ownership is all about.
Is your bank account ready? Check it twice.
Your first home will be the biggest financial obligation you have ever faced. You should already be an experienced saver and good at managing debt like student loans or credit cards. Ideally, you’ve also saved up some money for a nice down payment. Talk to your financial institution about the Home Buyers Plan too. Our next step will give you a crystal clear picture about how much you can afford.
Is now a good time to buy? Here’s the hottest market tip you’ll ever get:
Markets go up, markets go down and even the smartest experts can’t accurately predict when a market will peak or bottom out. The good news is, if you are buying a home as a long-term investment (and for long-term enjoyment), you are protected from short-term changes in the market. Over time, real estate has almost always increased in value.
All you have to do is pick a home that meets the needs of you and your family. Then you will enjoy living in your investment as it grows in value. A home is one of the best financial decisions you can make, so make sure you think things through.
Step 2: Figure Out How Much You Can Afford
Before you start looking for your dream home, let’s find out how big you can dream. Knowing your true budget is the first and most important step in buying a home. Why?
A home is a big purchase
It is probably the most expensive thing you’ll ever buy and there are lots of expenses you might not even know about. There are downpayments, closing costs, and other expenses that you have to be prepared for.
Monthly costs (mortgage, utilities, maintenance, insurance, property taxes)
You will need a mortgage
Step 9 is practically bursting with tips on how to arrange your mortgage but for now, we just need to figure out how much a bank will lend you.
How much will a bank lend you?
That depends on how much you can afford each month. This is determined using two lending principles:
The first lending principle is that your monthly housing cost should not exceed 32% of your gross monthly family income. This principle is known as the Gross Debt Service (GDS) ratio calculation.
The second lending principle used, the Total Debt Service (TDS ) ratio calculation is that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
Step 3: Decide What You Want to Buy.
First, decide where you want to live.
Urban – Inside the city. Sure the prices are generally higher but you can walk to restaurants and maybe even to work. You will also have the widest range of housing options.
Suburban -Newer schools, newer shopping centers, bigger yards, bigger homes - no wonder so many people love the suburbs. But if you work in the city, be prepared for lots of rush hour traffic. It’s a packaged deal.
Smaller Cities and Towns – There are many wonderful self-contained communities, and compared to the big city, you can save a bundle.
Rural -If you like the idea of owning land, how about a few acres all to yourself? Seclusion is not for everybody, but for some, it’s heaven.
Next, decide what type of home you want.
By now, you probably have a good idea of what type of home is right for you. To familiarize you with the terminology, here’s a quick overview:
As the name implies, the home is not attached to the home next door. Styles range from a single-story suburban bungalow, to a three-story Victorian.
Duplex or Triplex
Two or more houses that share a common wall. Typically less money than a fully detached home. They can be ranch style or two- or three-story homes with each floor belonging to a separate family. Separate entrances are most common. May come with a monthly maintenance fee.
Several homes with a common style joined in a row. They usually share walls on both sides. May come with a monthly maintenance fee.
An upscale version of an apartment, with access to common elements. Maintenance fees usually apply. Condos also make a great first home purchase because they are often less than a detached home.
How Condos are owned
You’ll own 100% of your unit, and a share of the common areas. Common areas include the necessary plumbing, electrical systems, hallways and elevators. They may also include lots of fun stuff like a private gym, pool, tennis court, etc.
Membership has its privileges. On top of your mortgage and property taxes, condo owners also pay a monthly fee to operate and maintain the common areas. Be sure to look into condo fees and how well they are managed before signing anything.
New or Resale?
Resale. Previously loved.
Nothing can match the charm and character of an older home. As a bonus, the previous owner may have made improvements and upgrades and you get them with the house, usually for less than the cost of putting them in yourself. However, some may have a little too much "character," like a leaky roof…know what you are getting yourself into. You should always work with a knowledgeable REALTOR® and, as we cover in Step 10, never buy a resale home without a Home Inspection.
Ahh…that new house smell.
You will be the very first person to live in your new home. In fact, your new home may be so new that it hasn't even been built yet. You have the luxury of customizing your home to your décor tastes.
Before you commit to anything, carefully examine the property, the blueprints, and visit other homes built by the same builder. Check to see if you like the finishes they offer and the craftsmanship and quality of their work. Have your REALTOR® and lawyer review everything before you sign. While your home is being built, stay on top of the process and remember, you have a legal right to make a full inspection of the house before you accept it as complete.
You know what you want, but remember to focus on needs.
Are you getting out of a two-bedroom apartment because it’s too small? Then your new home should have at least three bedrooms and probably a second bathroom. REALTORS® call these must-have features “needs.” Features you would like to have are called “wants.”
Your strategy should be to find a home within your price range that fulfills all or most of your “needs,” and as many of your “wants” as possible. Use the Dream Home Checklist to help you decide what you are looking for in a home.
Step 4: Find a Realtor® that is Right for You
You know how much money you have and you have a good idea of what you want. Now you need the help of a real pro to make your search a success.
REALTORS® are highly trained professionals that can help
REALTOR® Membership of a Real Estate board ensures the highest level of service and that you are always treated with honesty and integrity. This is backed by the REALTOR® Code of Ethics. Please note that not all real estate agents are REALTORS®.
The Three REALTOR® Relationships
The relationship between a real estate brokerage and a client is called “Agency” and there are three major kinds:
1. Seller Agency
The real estate brokerage represents the seller exclusively and it is their job to get the best offer on the home. They are legally obliged to tell the seller anything known about a buyer. For instance, if a seller’s REALTOR® knows a buyer will pay more for a property, they will tell the seller.
2. Buyer Agency
The real estate brokerage represents the buyer exclusively. They seek out homes that meet the buyer’s needs and help assess the merits and defects of potential homes. They keep the buyer’s information confidential and never disclose information like the maximum amount their buyer is willing to pay. You may be asked by your REALTOR® to sign a buyer agency agreement. This agreement ensures that the REALTOR® and the brokerage can look after your best interests.
Sometimes, a brokerage may have an agency relationship with the buyer and the seller. Both the seller and the buyer must give their informed consent, and the REALTOR® must always provide full and timely disclosure of all pertinent information to both parties.
SELL AND BUY WITH THE SAME REALTOR®?
Absolutely! Especially if you are remaining in the same community. Your REALTOR® is already an expert on your needs, so it can save you a lot of time and energy.
How REALTORS® help buyers like you
A REALTOR® will review your list of wants and needs to help you determine your price range.
- Answer questions about the markets you’re interested in and help you compare homes and neighborhoods.
- Use the local Multiple Listing Service (MLS).
- The MLS is the single most powerful tool for buying and selling a home. Your REALTOR® will give you access to exclusive features of the MLS system that the public is not privy to.
- Preview properties to ensure you are only shown homes that meet your needs and budget.
- Make appointments and walk you through potential homes, answering all your questions.
- Give up-to-the-minute information on financing.
- Negotiate with the seller, smooth out any potential conflicts, and draw up a legally binding contract.
Step 5: See What’s Out There
The hunt is on! Time for you and your REALTOR® to find that perfect home.
Read all about it
Let your REALTOR® know what you like. Visit areas you are considering and get a feel for them. Make note of the surrounding schools, shopping and recreational areas. Keep an eye out for not-so-great things like large industrial areas, railway tracks, high-voltage power lines and airports. Visit during the day and at night.
Open houses are a great way to see inside the homes of your potential neighborhood. The hosting REALTOR® probably knows the local market inside and out and will be happy to answer the questions that are bubbling up inside you – don’t be afraid to ask! However, you need to let that REALTOR® know that you are working with an agent to prevent conflict.
REALTORS® run an incredible research tool called the Multiple Listing Service (MLS). You can view information about properties listed in MLS systems across the country in the public advertising portal. Your REALTOR® will start sending you listings of potential homes right away. You will be amazed at how fast and easy it is to zero in on your favorite dream homes.
Work from a short list
If you and your REALTOR® have done your homework, and used MLS listings to scout ahead, you only need to visit a handful of homes to make an informed and wise selection.
Stay objective when visiting potential homes
Walking through a potential home is a thrill, but try not to lose your head. Don’t let a giant kitchen island or swanky hot tub distract you from your real goal, finding a home that meets all your needs and fits your budget. That is why this comprehensive House-Hunting Checklist will help you narrow down your search. Print it out and be sure to take it with you to homes you are serious about buying. Good luck and happy hunting!
Step 6: Sell Your Current Home
Not many people can hold on to two homes at the same time, so if you need to sell one to buy your new one, be sure to check out the incredibly helpful 10 Steps to Selling Your Home. In the meantime, here’s a quick overview:
When should you sell?
Buyer’s and seller’s markets explained
When there are lots of people looking for homes but there isn't many for sale, it is called a “seller’s market.” This is because the seller has something everybody wants. When there are lots of homes for sale and not many people buying them, this is called a “buyer’s market.” This is because buyers have more power of choice.
Wait for the market to improve?
If you are selling one home and buying another, you don’t really have to worry about playing the market. If you sell your existing home for a "low" price, you’re probably also buying at a low price. If you are upgrading to a larger home, this actually works to your advantage. Imagine when your bigger home is on the upswing.
Seasonality. Do home sales get frostbite?
It’s true. Winter sales tend to be slower and Spring sales are more brisk. Regardless, there are always people looking to buy and sell, and seasonality is only one of many factors to consider.
If you need to sell fast
Talk with your REALTOR®! They are experts and know the price that will make your home look attractive - without making you look desperate.
Buy first or sell first? The eternal question
Many people are able to time their sale and purchase so it happens on the same “closing date.” Buyers can make their offer “conditional” on the sale of their existing home, to make sure they’re not left paying for the upkeep of two homes. When selling, you can try to extend the “closing date” to give yourself more time to find your next home. REALTORS® are very skilled at this sort of negotiation and can make your transition a lot easier.
Sell with a REALTOR ® or go at it alone?
It is wise to enlist a professional when selling your most valuable asset. Real estate transactions are complex, time consuming, and involve a lot of legal documentation. Finding your new home and changing your life is hard enough! Your REALTOR® is trained and highly qualified to get you the most for your home.
Step 7: Add a Lawyer to Your Team
Buying a home involves piles of legal documents. You need someone to translate the "legalities" and to ensure your best interests. It is also wise to have an attorney look over the documents.
Finding a good lawyer
There are lots of good lawyers out there. Ask your friends or people at work. REALTORS® will happily give you the names of several good lawyers. They can’t legally recommend just one, but they will only refer lawyers experienced in real estate. Be sure you ask how they structure their fees, and get an estimate of the other legal costs you can expect.
How your lawyer will help
There are many, many legal steps to transferring ownership of land from one person to another. Even if pitfalls like fraud, government legislation, zoning issues or unpaid taxes don’t come up, your lawyer will more than earn their pay by making the legal transfer of the home a smooth one.
Step 8: Make an Offer
Now that you have found the perfect home, it's time to make it yours, which means you have to make a successful offer - one that the seller will accept.
Preparing the offer
REALTORS® are expertly trained and will prepare the offer for you. Here are some terms you will see in the offer:
- Buyer or Purchaser – That’s you
- Seller or Vendor – The present owner(s)
- Purchase Price – The most important number
- Earnest Money Deposit – Good Faith money you write to the seller's Title Company or brokerage, who will deposit it into a trust account. This is your way of saying “my offer is serious.”
- Clauses particular to this agreement – Every transaction is unique and your REALTOR® may add conditions important to you.
- Chattels included and fixtures excluded – Be sure you know what is included with the house! The washer and dryer, the microwave, draperies, light fixtures. Don’t leave anything to "chance" because chances are, it won’t be there when you move in.
- Irrevocability of the offer – The length of time you give the seller to consider your offer. Usually less than 48 hours.
- Closing Date – The day you take possession! Often 30 or 60 days after Offer acceptance.
When it comes to the type of offer you make, it really depends on your individual situation. Discuss your options with your REALTOR® to see which of these offers is right for you.
- Firm Offer to Purchase
Usually preferable to the seller as it means you, the buyer, are prepared to purchase the home without any conditions.
- Conditional Offer to Purchase
Usually means there are one or more conditions on the purchase, such as “subject to home inspection,” which is highly recommended in all transactions, “subject to financing,” etc. The home is not sold unless all the conditions have been met.
- Acceptance of Offer
An Offer to Purchase is presented to a seller who may choose to accept the offer, reject it, or submit a counter-offer. The counter-offer may be in regards to the price, closing date, or any number of other variables. Offers can go back and forth until both parties have arrived at an agreement or either side ends the negotiations.
Submitting the offer
You have signed on the dotted line and your REALTOR® has whisked your offer to the seller’s agent. Normally, the parties of the transaction do not meet in person. The next step is:
The seller will accept your offer – Fantastic, you're under Contract!
The seller can reject your offer – It is not uncommon for an offer to be completely rejected, especially in a multiple-offer situation. If this happens, do not lose hope and give up.
The seller can counter your offer – The seller wants to alter "some part" of your offer. It is almost always the price, but it could be the closing date, earnest money amount, etc., to name a few. Now it’s your turn to either accept, reject, or counter again. It can feel a bit like a ping-pong match. Emotions can run high and both sides are reminded that a little flexibility goes a long way. Good luck!
Step 9: Arrange a Mortgage
Money makes the world go round and a mortgage gives you the power to buy a home. This isn’t the most fun step in buying a home - but it’s vital.
Who do you talk to?
There are hundreds of banks, credit unions and other lenders out there, be sure to talk to a few lenders before making a decision. They have different programs and financing options to fit your financial needs.
Mortgage brokers are a great resource as well as they find low rates for a living, and they usually don’t get paid unless you sign a mortgage through them, so they’re highly motivated to get you the best deal.
Amortization – The length of time it will take you to pay off the whole mortgage. Often as long as 30 years, if you don’t accelerate your payments. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Interest rates – Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using the mortgage calculator, check the difference between borrowing $100,000 at 6% and at 9% at the same amortization.
That interest rate not only affects how much you pay, it also affects how much you can borrow. So remember to keep searching for the best rate!
How big a down payment?
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture, etc.
What you need to apply for a mortgage.
- Letter of employment confirmation, usually 2 months of W2 – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
- List your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
- List your liabilities – Car payments, student loans, credit card debt. List all the money you owe.
- Social Security Number – And your bank account number.
- Information about the house you want to buy -The home is your security on the mortgage so the lender wants to know all about it.
Don’t forget these extra costs.
Application fee – Some mortgage lenders charge a fee to process your application. Some lenders might agree to waive this fee, so make sure you ask!
Appraisal fee – Your mortgage lender will need to have your new home appraised by a professional, and they often pass the bill on to you.
Mortgage broker’s fee – Your mortgage broker may charge a fee that’s payable on your closing date. Ask your broker to avoid surprises.
Land survey fee – Lenders may require a survey of your property. It can typically cost between $300-$900. Lenders will often accept an existing survey too.
Home inspection fee – A home inspection is important, I devoted an entire Step to it. Avoid surprises and protect yourself...this is money well spent.
Home Insurance – Mortgage lenders require you carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments. Shop around.
Maintenance and utility costs – Just a reminder, you now have more regular monthly payments in the form of property tax, utilities, repairs etc.
Prorated Adjustments – The previous owner may have paid property tax or utilities in advance, and they want to be credited for those payments. Any bills after the closing date are the responsibility of the purchaser. The Title Company will let you know what they are once the various searches have been completed.
Step 10: Find a Home Inspector
When walking through a home you would love to buy, it’s hard to put aside your emotions and really "see" what kind of shape it’s in. Now that you are buying, it’s time to see everything. Home inspections rarely cost more than a few hundred dollars, and their service can save you from unpleasant surprises when you move in.
Your offer to buy may be conditional upon a satisfactory home inspection
This is an increasingly standard condition on any resale home. If the seller doesn’t want you closely examining the home before you take possession, you have to wonder why.
Go with a qualified professional.
Make sure the inspector is a qualified home inspector. Your REALTOR® can recommend several home inspection companies to choose from.
What will they check during the inspection?
Plumbing and electrical systems, the roof, visible insulation, walls, ceilings, floors, windows and the integrity of the foundation. They check for nasty stuff like lead paint, asbestos, mold, outdated and dangerous wiring, and they will look for evidence of pests like mice or termites - just to name a few.
Join the inspection
There’s no better way to get familiar with your new home than being part of this checkup. If any problems are detected, you’ll see them firsthand, and you will also learn some maintenance tips from a good pro.
You’ll get it in writing
Their report will summarize the condition of your home. If there’s anything that needs work, the home inspector will point it out and will recommend the issue to be corrected.
Home inspection for a new home?
New does not equal perfect and construction quality can vary greatly from builder to builder. A thorough home inspection is recommended even on new construction.
Step 11: Close the Deal
Your offer has been accepted and you are ready to move in. These are exciting times but you still have to close the deal. Your REALTOR® and Closer will do most of the closing work, but here’s your checklist.
- Immediately begin satisfying any conditions of the agreement that require action on your part. Your REALTOR® will fill out the documents stating that the conditions have been satisfied.
- The Title Company will begin searching title to the property. This can take 7-10 days.
- Have the home inspection done as soon as possible to avoid any unpleasant surprises.
- Call around and get a homeowner’s insurance. You can’t get a mortgage without the homeowner's insurance.
- Contact your lender and have them finalize your mortgage documents. Have your lawyer review them before you sign, if you wish.
- Call the essential utilities like water, natural gas, electric company, and cable to switch their services to your name.
- If you rent, you must give notice to your landlord, or sublease your apartment.
- Begin planning your big move! Where are those cardboard boxes? Book your moving service early to avoid scheduling problems.
- Send out your change of address information and fill out a card at the post office or online.
- A day or two before closing, you’ll do a "final walk through" with your agent to make sure the home is satisfactory.
- The Closer will tell you in advance what certified check (or wire transfer) you’ll need to seal the deal.
The big day arrives
Deliriously happy and emotionally exhausted, here you are on closing day. You made it! If everything went well so far, closing day can be surprisingly low on drama. Before you know it, you’ll be handed the keys to your new home.
Step 12: Move In
Moving day will come sooner than you think, so get planning now.
"Closing date" often means moving date
Unless you have major repairs or renovations planned, you probably want to move in the day you take possession. If you intend to move at the end of the month, contact a moving company or truck rental company now. Most people move during this time and there aren’t trucks and movers for everybody. If you can move midweek or mid-month, a moving company might cut you a deal. Keep in mind, the closing process might not have the keys in your hands until early-to-mid afternoon.
Go with a reputable moving company
We’ve all heard moving horror stories. Go with an established, insured mover, so your items are protected. If any damage does occur by the movers, call the moving company immediately to notify them.
Pack it yourself, and pack early.
Nobody will take the same care you will. Start early and spread it out over many days. Label all your boxes by room so the movers know where to put them, and label anything that’s fragile. Smaller breakables should be driven to your new home by you to ensure they are safe from breakage.
Do you really need to take that with you?
A new home is a new lease on life and a chance to liberate yourself from stuff you simply don’t need. If you haven’t used it or worn it in the last year, you don’t need it. Have a garage sale to make some extra cash for your move, or give your items to Goodwill or United Way. You won’t have to pack and unpack it, and it will become someone else’s treasure.
Once you move in
The boxes are mostly unpacked and you’re settling in nicely. You will now feel a strange urge to begin making changes and improvements right away. That old carpet has to go; a bigger deck would be great for entertaining... Take time to get a feel for your new home, and more importantly, your new budget. Take a deep breath and enjoy what you have, your new home.