Buying a house can be thrilling, a major headache and stressful all at once for an extended period of time.
It was all that and more for me, and I closed on my new house two days after Christmas.
After all, it’s not every day you plunk down $2,500 in earnest money, much less a $40,000 down payment.
Buying a house is typically the largest investment a person makes. I’m no different — except I’ve bought five homes and sold four, so I fancy I’ve learned a thing or two along the way (such as buy low, sell high … but I digress).
Stave off the migraines by taking it one little step at a time.
First of all, go to your bank and get pre-approved, said Jack Beuse, chairman of the board of the Pikes Peak Association of Realtors. Not pre-qualified, but pre-approved.
Pre-qualified gives an estimate; pre-approved gives a concrete number.
For pre-approval, the bank will study your debts, your income, your credit rating and any bankruptcies, foreclosures and other financial matters pertaining to the people applying for the mortgage loan. They need all your sensitive financial information, regardless of how you feel about giving it to them. With this information, the lender will formally let you know what price home you’re able to buy. Of course, looking at Taj Mahal homes when you’re approved for a $375,000 loan just wastes time for you and your Realtor.
Regarding what you can afford, Realtor Cathie Elliott highlighted a rule of thumb: Determine your gross income, then multiply the number by two to two and a half.
“This will give you a general idea of what you might qualify for,” Elliott said. “If you have a large down payment combined with little-to-no debt, the lender may believe you can afford a more expensive home than this rule of thumb.”
After you’re pre-approved, you know you can afford a home, in my case worth $275,000 tops. With this information, you approach a Realtor. Someone you can trust. And for me, someone with a good sense of humor.
If a client asks whether a certain neighborhood is safe, Beuse said, as a Realtor, he cannot recommend one neighborhood over another. Instead, he’ll steer the potential buyer to the Colorado Springs Police website that lists the crime in the city, broken down by neighborhoods.
The same goes for school districts; Beuse will show his clients websites that have test scores from schools in the many districts in the Pikes Peak region.
For pre-approval, the bank will study your debts, your income, your credit rating and any bankruptcies, foreclosures and other financial matters.
Next step: Look around, tour many and eventually find your perfect home. I did a lot of driving around in neighborhoods I liked before finding my mini-palace. I spent a lot of time on the Internet at sites like Zillow.com.
Depending on how long the house has been on the market, its price, its condition, its curb-appeal, how many people are looking at it and comparably priced homes in the neighborhood, make an offer on your final find.
Let’s say you offer $260,000 when the listing is $275,000. The owners may accept your offer, or they may make a counter-offer. Their counter-offer may be counter-offered again by you.
After you seesaw back and forth, you may eventually agree on a price and sign a contract to buy the property. When this happens, you are now “under contract.”
When you make the offer, you’ll also need to write a check for earnest money. This is money you’ll give your Realtor to bind the agreement.
This money typically is applied to the down payment you’ll make later, so you’re not really giving it away — you’re making an investment.
Now that you’re under contract, it’s time to have a professional look at the structure of the home to see if it “has good bones,” according to my Realtor Stuart Vestal.
A house with “good bones” is one with a solid roof and foundation, made of decent quality materials, has a coherent design, preserved architectural details and natural light.
Experts recommend having a professional inspector — not Uncle Bob — review your future home. The inspector will review and test the property’s water heater, furnace, plumbing, foundation, windows, walls, doors, attic, roof and outside areas.
If there are health and safety issues, like a broken vent from a natural gas heater, you can list those on an objection list. The owners may then fix all or some of the items on the list, they may lower the price or they may refuse to fix the items.
Again, you will either reach agreement with the sellers or you won’t. If the sellers’ response to the objection is unacceptable to you, you can have your earnest money returned and begin looking again.
Let’s say you reach an agreement and the owner agrees to fix all the objections related to health and safety, as the owners of my house graciously agreed to.
The seller has a certain amount of time to fix the items, after which you have a certain period of time to review the seller’s work.
During this time, several things are happening at once:
• you will finalize a loan with your bank or credit union;
• the seller will buy title insurance to ensure the title is free of any liens or encumbrances;
• you will get quotes for home owners insurance and buy insurance;
• the lender will appraise the property to ensure the loan is not greater than the value of the property; and
• your Realtor will disclose the estimated closing costs. Closing costs include detailed lists of title insurance, tax prorations, real estate commissions, county document fees and recording fees and who is responsible — the buyer or seller — for paying them.
Next stop: Closing on the house.
This is when you get writer’s cramp signing legal documents that finalize the home sale.
You will bring your down payment to the closing, and the seller will bring the keys.