Denver First Time Home Buyers 2010

COMMON MISTAKES TO AVOID WHEN SEARCHING FOR A HOME.

• Borrower provides lender with “most” of the required documentation for the loan application but doesn’t follow up closely enough on the “odds and ends” paperwork the lender is required to have before they can send the application to underwriting for approval. This may slow down the loan process and even cause it to be denied.
• Borrower tries to anticipate the timing of the “best” interest rates based on news reports and fails to “lock in” on the best rate for their particular loan needs.
• Borrowers shop for a loan exclusively by rates, ignoring other fees, references, reputation, and track record for the lender. (Junk fees add to the overall cost of a loan and missing a closing date through a botched loan can cost hundreds of dollars. Some have even found themselves without a home when a loan falls through at the last minute. Rates matter very little if the loan cannot be delivered as promised.
• Buyers contract for home, apply for a loan then go out and finance a large item such as a car, vacation etc. Applying for and opening additional credit cards and sometimes even paying off/closing credit cards can be a reason for your home loan being denied. Buyers need to remain “credit worthy” during the duration of the home buying process.
• Buyers fail to use a “local” lender and opt to use “out of state” or on-line lender who are unfamiliar with local mortgage rules and programs. These lenders may fail to meet a deadline or hire appraisers that are unfamiliar with the local housing market and the transaction may fail. Using a local lender allows for better communication, easier access to documents, provides local market knowledge and helps prevent last minute deadline issues. They also have a vested interest in making the loan process successful in order to achieve their business goals. They live in the communities in which they serve. 
• Buyer writes a contract before a being pre-qualified by a lender. Your realtor should never let this happen. Sometimes a borrower cannot qualify for a loan to purchase the home (or the sales price of their desired home) and the deal is canceled.
• Buyer contracts for more than the loan pre-qualification amount. Upgrades and “just a little more house” can disqualify a borrower.
• Buyers try to purchase a home without professional advice. They often learn (the hard way) that potential savings may be eaten up with poor negotiation, contractual issues, wasted time and mistakes.

What are Closing Costs?

Closing costs are all the charges you will pay at the time of closing. They are a lump sum amount that include all the charges to process the loan, your down payment and any “prepaid” expenses associated with the sale. Although your down payment is required at this time, you can expect to pay 2-2.5% (above and beyond your down payment) for the closing costs.   

3 types of closing fees

• Down Payment – the amount you are paying for a down-payment on the home
• Pre Paids – pro-rated fees paid in advance. See explanation below.
• Fees – lender fees, recording fees etc.

Your lender should provide you with a “Good Faith estimate” that breaks down all charges. This should be available before the closing takes place.

Sample Closing Fees for Denver

Credit Report - Usually around $60.00. Paid at the time of formal loan application. Non-refundable.

Property Appraisal Fee - Usually around $350 – $400. Paid at the time of formal loan application. Non-refundable.

Origination Fee – The lender’s charge for loan processing and handling. Customarily 1% of the loan amount, paid by the buyer.

Discount Points - Vary with mortgage market conditions and may range from 0 – 5 or more. Each point is 1% of the loan amount. Points represent the difference between the loan’s rate of interest and the discount to this interest that the lender will have to offer to sell the loan to a buyer of loans or a loan investor. Points may be paid by the buyer, seller or both.

Mortgagees Title Insurance – Usually around $100. The lender (who is the mortgagee) requires the borrower to purchase a title insurance policy to protect the mortgagee against title defects that would affect the loan. (NOTE: The seller purchases a title policy for this protection for the buyers.)

Improvement Location Certificate – Usually around $150.00. The ILC is in lieu of a survey and helps define the characteristics of the property-boundaries, easements etc.

Document Preparation – Usually around $100-$200. This is a lender’s fee for completing and handling the paperwork associated with the loan.  

Recording Fees – Usually about $35.00. These are recording fees associated with the purchase (i.e. the warranty and trust deeds) that the local governments charge to process these documents.

Pre-paid Items – These are collections in advance for loan interest, homeowners insurance and property taxes. Daily interest from the date of closing until the end of the month. One year’s homeowner’s insurance premium for the coming year. 2 to 3 months advance payment for the following year homeowner’s insurance premium which is placed in the purchaser’s escrow account. 2 to 4 month’s worth of property taxes are placed in the purchaser’s escrow account over and above the seller’s credit to purchasers

State Documentary Fees - Tax Stamps one penny per thousand dollars.

Real Estate Closing Fees – Usually $175.00 (Normally split 50/50 between buyer and seller.)

Understanding Earnest Money and Other Out Of Pocket Expenses

Earnest money is a “deposit” that is required at the time of the offer to purchase a specific property. The earnest money is in the form of a cashier’s check or personal check and indicates to the seller of the property that you are serious about buying the property. This check is held in the trust of the real estate company (the real estate company enlisted to sell the property) or a designated Title company. Your earnest money is refundable providing you adhere to and meet all requirements of the contract. At closing, your earnest money is applied toward the closing costs of the loan.

How much earnest money will I need?

The earnest money required is pre-determined by the “listing” agent and the seller. Usually, the more expensive the home the higher the earnest deposit. The earnest money requirement can be found in the MLS listing and like most elements of a contract is negotiable, however the more money you put down, the more serious your intent will appear to the seller. This check will be held by the listing broker until contract agreement, at which time your check will be deposited into the listing broker (or title companies’) trust account.

Home Inspections

The home inspection usually takes place 7-14 days after the contract has been accepted. The inspection is a comprehensive evaluation of the “physical” condition of the property. It includes but is not limited to things such as roof condition, structural condition, appliances, furnace, hot water heater etc. It helps provide the “prospective buyer-you with a snapshot of the property. Sometimes the findings in the  inspection leads to having an evaluation by an “expert” to determine what it would take to correct and the cost involved in solving a potential issue with the property.

Estimated inspection fees

• Home inspection: $150 – $300 (based on sq ft of the property).
• Radon testing: $100-$200

Loan Application and Credit report Fees

Sometimes a lender will require the buyer to pay for the loan application fee and credit report fee upfront. These costs are usually included in the closing costs but a lender does have the option of charging for them up front. Credit report fees can run around $60 and loan application fees are generally 1% of the loan amount.