So you’ve decided you want to buy a house. That’s great! Now what? Figuring out next steps can be confusing. One of the first things buyers ask me is, “when should I start looking at houses?”
The answer depends on your particular situation but in general, at least 2-3 months before you want to be in your new home. Starting the process as early as you can is advisable. Looking for a new house can be like having another job. It can be very time consuming and there’s a large amount of information you’ll have to learn so the more time you have the better.
A Timeline For Buying:
Market Education – 90 days or more out
One of the first things you should do is start familiarizing yourself with the market before you start looking at houses. A Realtor can create a custom housing search specifically for you. Once daily, you’ll receive an automated email from the MLS that will display all the houses that match your search criteria. Reviewing these daily emails will educate you on what is available and for what price. This will also help you figure out what you’re looking for; you’ll be able to spot properties that are attractive to you more quickly. In a strong seller’s market like Denver, decisiveness when looking at homes is important.
Getting Pre-Approved – 60 days out
Before you go see homes in person, you need to get pre-approved by a lender. Pre-approval involves the lender will looking at your credit and financial information and making a determination regarding how much money you can qualify to borrow. This will tell you what your maximum purchase price is. If you can’t qualify for a loan, this process will reveal that; at least then you won’t waste time looking at houses you couldn’t have bought anyway. Pre-approval letters are generally good for 60-90 days.
Showings With A Realtor – 45-60 days out
The process of seeing properties with your agent and submitting an offer could take a few days or many months. It depends on what you’re looking for, your price point, how available you are to see houses, and market conditions. There’s also a possibility that it could take some time for your offer to get accepted. If you submit an offer on a property and get beat out by another offer, you’ll have start over and look for another property.
Go Under Contract – 30-45 days out
Once your offer is accepted, the clock starts. At that point you have a closing date set; it’s usually about 30 days out. What’s going on during that time? You as the buyer will be reviewing various disclosures and reports from the seller, inspector and appraiser on the home. The lender works to get the loan through underwriting, and the title company works on transferring the title from the seller to the buyer. The buyer’s and seller’s agents negotiate on behalf of their clients, coordinate all the moving pieces and work to keep the transaction together and moving forward while resolving any problems along the way.
Closing – 0 days out
Once you close and take possession of your new property, you’re done and you can begin moving in. Ideally you’d have a few days between closing and whenever you would have to be out of your former home to allow some buffer for packing and moving. Some buyers choose to move and close in the same day and it can be done. If the seller wants to live in the property after closing temporarily, your whole timeline could get longer by up to 60 days.
Questions? Let me know; I'd be happy to help!
Real Estate Outlook For 2017
In 2017, the housing market is expected to see gains in home prices though likely at a more moderate pace than previous years. In 2016, fueled by low inventory, low interest rates, and high demand, median home prices in the Denver metro area increased 11%. This year, many industry experts expect appreciation between 5-9%. This would certainly be more sustainable long term and healthier overall than double-digit gains. But don’t rule double-digit gains out completely; low inventory paired with high demand, healthy job growth, and low unemployment as well as a variety of factors will decide what kind of year 2017 shapes up to be.
Factors To Watch In 2017:
According to the Colorado Division of Local Government, millennials now account for 25% of Denver’s population making them the largest demographic in the Denver area. Millennials will account for a large percentage of first time home buyers who will make the transition from renting to owning. As millennials get older and their incomes grow, especially in the 28-31 age group, the amount of buyers entering the market will increase adding to an already high demand.
2. Job Growth:
Denver added nearly 51,000 new jobs each year from 2014-2016 in a wide variety of industries including aviation, IT services, beverage production, renewable energy, and aerospace. Through the third quarter in 2016, Colorado was the 9th fastest state for job growth in 2016 (2.8%) while jobs in metro Denver grew 3.1% with Ft. Collins leading out at 3.5%.
3. Interest Rates:
Currently, rates for a 30 year FRM are approaching 4.3%; almost a point from 3.4% rates that were available just four months ago. Economists expect the Fed to hike rates 2-3 times in 2017 with the first rate hike coming most likely in March or April. Rising rates will gradually price some buyers out of an already hot market. If rates reach 5%, it could begin to slow demand somewhat and home prices could soften.
Inventory is still very low at 7 weeks, and although building permits are up 16% in the first part of the year, new builds have been unable to keep pace with demand. Denver remains a destination city and net migration projections indicate we will likely add another 50,000 people in 2017.
If you have any questions about the market or about buying or selling a home, feel free to email me at firstname.lastname@example.org.
Sources: Colorado Division of Local Government, Denver Metro Association of Realtors, U.S. Bureau of Labor Statistics, Development Research Partners.
There are three basic categories of costs that will occur throughout the escrow process:
1. Down Payment
2. Earnest Money
3. Closing Costs
Earnest money is money you submit to the title company for the seller within 1-2 days of going under contract. It’s shows that you’re serious about buying the house. The idea is if you default and terminate the purchase contact outside of one of the allowable provisions, the seller can keep your earnest money. Earnest money is usually 1-3% of the purchase price.
A down payment is money you pay to the seller upon closing that immediately goes towards your purchase. If you buy a $300,000 house and you are paying 3% down, you would pay the seller $9,000 and your lender would pay the seller the remaining $291,000 on your behalf.
It seems most potential home buyers worry most about the down payment. The widespread belief that you must have 20% of the purchase price (*for an owner occupied primary residence) is not true. Many first time home buyers put just 3% down. The FHA and Conventional Loan programs only require 3.5% and 3% down respectively while the VA Loan requires 0% down.
Closing costs are roughly 2-4% of purchase price and include two major categories of expenses:
1. One Time Costs & Fees
2. Escrow & Prepaid Expenses
- One Time Costs & Fees:
One Time Costs and Fees include a myriad of items such as loan origination charges, the lender’s title insurance, an appraisal, a credit reporting fee, a closing fee, and a survey. All of these are transaction costs that allow you to purchase a home.
- Escrow & Prepaid Expenses:
Escrow & Prepaid Expenses include: prepaid home owner’s insurance, prepaid interest on the loan, mortgage insurance charges, escrowed property taxes, and an owner’s title insurance policy. These are charges that are paid at closing in advance for services, or money your lender holds to pay off anything that could cause a lien on your new home (property taxes, utility bills, etc.) The idea is if the lender has payment for those services ahead of time, the lender can pay them; from the lender’s perspective, this makes it less likely a lien will be placed on your home in the first few months after closing which could threaten the loan.
Inspections & Moving Costs:
Home inspections generally run $300-$600 and are generally paid at the time of inspection, not at closing. Don’t forget about moving costs. Whether you’re renting a moving truck and doing it all yourself or paying a moving company, you’ll need some cash for moving costs as well.