THE HOME BUYER--

So you are thinking about buying a house. You have heard that payments on a home can be less than paying rent. The interest rates are low, you are employed, you have some savings, and you have good credit, so where do you start?

Do you drive around looking at Open Houses, check out "For Sale By Owner" Homes, or scan the classified ads? All the above, but like most projects you need a plan of action. There are steps to buying a home just like there are steps to looking for a job, getting a college degree, or taking a vacation. You will need to know many things to get you to your goal, and you'll need to make many decisions along the way. Most importantly , you'll need a plan to help you navigate the process safely and confidently. With so many variables, just how do you start?

Start with a Realtor, also referred to as an agent. A Realtor is to home buying what a conductor is to an orchestra. Just as a conductor must know all the instruments sound and capabilities, read musical scores, and know when and how each instrument should play, a Realtor must be knowledgeable about all facets of the home buying process. These include decisions on neighborhoods, financing, Real Estate law, contracts, home values, inspections and repairs, home warranties, builders, negotiating, title work and the closing process. The Realtor is your conductor and makes certain all players do their job and play according to the rules.

How do you choose a Realtor? Possibly you know a friend who is a Realtor, maybe you access three (3) different names from the Internet, maybe one of your friends recently bought a home, or you were referred to a Realtor by a Real Estate company in your current hometown. Regardless of who you choose or how, there are issues you need to be aware of before agreeing to work with a particular Realtor. Interview the Realtor for their knowledge and their willingness to listen to your needs. Be sure you feel comfortable with them.

You need a Realtor who is genuinely interested in you, and who gives you good advice and volunteers all information that is helpful to you. Some Realtors have more experience and success, than others and some have completed higher levels of education. It is usually best to choose a full-time realtor -- for whom Real Estate is an only profession. Make a list of questions that are important to you, and be sure to discuss those questions with each Realtor as you shop for one who will best help you. Your Realtor will become your counselor so feel comfortable before selecting an agent.

Upon a first substantial contact with an agent, they must explain the three different kinds of agency that are available to you -- Seller's Agent, Buyer's Agency, and Transactional Agent. This is the law in many states, including Colorado, and an agent must inform you of your choices and ask you to acknowledge that you understand them. In most states without this law, all agents represent the Seller and owe their fiduciary responsibility to them. Although the agent must treat all parties fairly, the services they can offer to the Buyer are limited.

Where this law applies, the Buyer can also choose to have an agent represent them and negotiate for them. The agent then becomes a Buyer's agent and owes their fiduciary responsibility to the Buyer. The agent is still compensated for services by the Seller, in most cases. This is almost always done as a percentage of the selling price, and the standard fee in most cases is six percent (three percent to each side). If the Buyer chooses to have the agent represent them, then they must have a signed document setting forth all the terms of the agreement. The Colorado Real Estate Commission has drawn such an agreement to protect all parties. Since this agreement is two pages long and is written in legalese, some companies have simplified the form. Most other states have similar forms. Depending on the type of agency chosen, agents have certain responsibilities set down by the laws of their state. For instance, in some states, a buyers agent must notify a homeowner or listing agent of his/her agency agreement and obtain written proof of understanding of that fact.

Once you have chosen an agent, decided on the type of agency and signed contract, you must next determine how much you qualify for in a mortgage, and discuss different financing options. This is really critical, because you don't want to waste your time looking at homes that you would not qualify for. This again is part of mapping out your course and staying on track. Two people can buy a house together regardless of whether they are married or even related. Parents can assist as co-signers on the note, or they can give funds for a down payment to help out. You can borrow on your retirement account or insurance policy, if necessary, for part of the down payment. Most lenders will require you to meet general guideline qualifying ratios.

The ratios are different for FHA, VA, conforming conventional and nonconforming conventional or jumbo loans. By first looking at your income and debt ratio, the Realtor can make suggestions to you about your best financing options. There are two important ratios for all loans except VA, the front end ratio which is the PITI to income and back end which is the PITI plus other debts to the income. In order to sell the mortgage on the secondary market the ratios must meet the general guidelines. There are portfolio lenders that stretch the ratios and there are programs for first time home buyers. All of this must be taken into consideration before charging out to look at homes. At this point it is good to go ahead and get pre-approved for a loan, by filling-out the necessary information. The agent can assist you with lenders that specialize in the loans that you may be interested in. When you meet with a loan officer, they will give you an estimate of the funds needed to close and an estimate of your payment. This is called a Good Faith Estimate. Once the Realtor or your lender has determined your maximum mortgage qualification, it is time to look at your wants and needs.

A good place to start is how far do you want to drive to work? Look at the area map and draw a circle indicating the farthest you want to drive. Are schools and shopping important? Do you want to look at both new and resale homes? How many bedrooms and bathrooms do you need? Do you prefer a one or two story? If you like older homes, can you live without central air and heat? Do you need formal living and dining? These are good questions to ask and a Realtor can help you with all this information. Again the Realtor will make notes on all this information and develop a profile that can be entered into a computer to assist with locating homes that meet your criteria. The more specific you are about your requirements, the better the Realtor can screen homes and show you the homes that best meet your criteria. This can be invaluable when the market is very active as good homes may sell before you are even aware they are for sale. A good Realtor will check the multiple listing service daily for new homes and call you with the ones that meet your criteria.

Next you will go out and look at the homes that meet your requirements, remembering price location, etc. When previewing the homes make notes on the ones that are of interest and totally disregard the ones that you don't like. Once you have seen a few homes you will be able to tell the agent which ones you like better and why. This again will assist the agent in focusing in on the right areas and houses for you. Once you have found a home that you want to make an offer on, it is time to sit down with the agent and map out your strategy. We must regress a little here on agency. At this point, it will depend on whether you chose Seller's Agent or Buyer agency as to how the agent can assist you. If you chose a Buyer's Agent, the agent can do a CMA on the home of choice to show you how well it is priced. The agent can also make suggestions on offer price and negotiating points for you. A Subagent cannot assist you with this. As the agent prepares the offer, they will explain the various paragraphs of the contract. The agent will insure the proper addenda are attached to the offer. You must submit a check for earnest money when the offer is presented. The offer is written, what happens now? Your agent will deliver the offer to the Listing agent who will present it to the Seller. If you chose a Buyer's Agent, you can request that your agent be present for the presentation. It is the Seller's choice as to whether this will happen. The contract is presented to the Seller. There are normally three things that the Seller will do: (1) accept the offer as written, (2) counter the offer, changing terms and conditions, or (3) reject the offer.

Once the Seller has made his decision the Listing Agent will contact your agent, and you and your agent will get together and go over the offer once more. If the Seller countered your offer, your agent will counsel with you, and you will decide whether to proceed with this house or continue to look at more homes.   Assuming that all parties have agreed to all terms and conditions in the offer, you now have an executed contract. There are specific dates that all parties must adhere to. Your agent will become the conductor and insure everyone complies. Your agent will open title and give you a receipt for the earnest money. Your check will be deposited by the title company at this point and held in an escrow account until closing. The title company will begin researching the title on the property and provide you with a title commitment showing all liens, encumbrances and judgments on the property. You and your agent will review the report.

Now it is time to complete your formal loan application, if you have not already done so and provide the loan officer with a copy of the contract. They will order the appraisal on the home and proceed to verify all of the information on your loan application. Once they have received the appraisal and all of your financial and employment information has been received, your loan package will be submitted to the underwriter for approval. If everything is in order your loan will be approved at this point and the title company can proceed to the next step which is drawing papers for closing. If additional information is required, the underwriter will set forth the conditions under which the loan will be approved and the loan offer will advise you of the requirements.

In the meantime, you will have scheduled the house inspection and complied with the dates in the contract and inspection addendum. Your agent will help you remember to schedule the inspections and provide you with a list of real estate inspectors. These inspectors must be licensed by assuming that the repairs are within the allowance, the Seller will be responsible for having the repairs completed prior to closing. Normally, the repairs are not started until after loan approval, so that is another reason to make certain that the loan officer has all the information that they need in a timely fashion. Again, your agent will be in touch with the loan officer on a regular basis.

While the loan is being processed, you should determine who you want to provide the homeowners insurance and a home warranty program. Your mortgage company will require that you provide a policy for the value of at least the loan amount. This is for their and your protection should the property be damaged by fire, tornado, etc. Your Realtor can assist you with insurance information as well. Once you decide on an insurance company, the insurance agent will call the title company and the cost of the policy will appear on your HUD closing statement as you can see, your agent is coordinating the loan, title work, inspections, insurance and finally the closing. A home warranty program should be considered as well.  Ask your Realtor for details.

Your loan has been approved, the repairs have been made, your insurance is in place, it is time to set the closing date and time. Once this is done, the title company will order a survey of the property. You will know when this is done, because the surveyor will mark the corners of the lot with stakes and pink ribbons. The closer will go over the copy of the survey with you at closing or your agent will go over it with you prior to closing. Your survey blueline will show the dimensions of your lot and a foot print of the house on the lot.

Once the mortgage company sends instructions to the title company, they will draw the papers and prepare an accounting of all the funds on the closing statement. After they have completed the closing statement your agent will call you and let you how much money you must bring to closing. The title company requires your funds to be in the form of a cashiers check or certified funds.

Now it is time to go to closing and sign all your papers. This is the exciting part, you will finally get the keys to your home. Your agent will let you know the time and place of the closing and all parties on the contract must be present to sign the papers. In rare occasions a power of attorney may be used, but this is limited. You arrive at the title company with your cashier check and driver's license. They will need your license or other picture identification for the notary that acknowledges your signature. Sometimes the Buyers and Seller close at separate times, but usually all parties sign together. All parties must execute the documents before the papers can be recorded and the loan funded. Normally, you will not get the keys until the loan funds and the Seller gets his/her money. At the closing you will sit down with your agent, the closer and the Sellers if applicable and execute all your papers such as the note and deed of trust.

The closer is in charge of the closing and will explain briefly each document that you are signing. If you would like to read the documents, then request a set in advance of closing and review them because there is not time during the closing to read all the small print. The documents are standard documents and have been drawn at your lenders instructions. The title company cannot change anything on the documents without the lenders approval. When you are reviewing the papers, double check the interest rate, and terms of the loan to insure that they are as you agreed to with the lender. Your agent does not get a copy of this information, so you need to verify the information yourself. Once you have signed all the necessary papers, and given your cashier's check, the closer will fax certain documents to the lender's closing department. The lender will then authorize funding and approval to disburse funds This usually happens within a few short hours. It is much better to close early in the day if you need to move in right away. The listing agent will have instructions on how to release the keys. All of this will be arranged in advance so there are no surprises.

Congratulations! By following a simple plan of action and with the assistance of your Expert Realtor and other knowledgeable professionals, you have completed the process.

GLOSSARY

FINANCING

Bottom Line Requirements for a Home Buyer that wants to coordinate the process themselves, pay a lower Realtor commission, after signing a contract with an EXPERT REALTOR.