Buying a home can be a time-consuming and complicated matter. There are many steps involved. However, a real estate professional can be very helpful in getting you through this process. This is a reference guide to help you navigate the process of buying a home in Colorado.
What is a real estate broker?
A real estate broker (also known as an agent) is a person licensed by the state of Colorado that can assist with buying and selling a property (house, condo, townhouse). You are not required to be represented by a real estate broker to buy or sell a property, but the process is complex so we recommend hiring a licensed real estate broker.
As a buyer, it is recommended that you contact more than one real estate broker, and then select one that best fits your needs and is knowledgeable in the area(s) of interest. Many home buyers work with brokers that were referred to them by prior clients.
What is an Exclusive Right to Buy Listing contract?
This is a written agreement that you (as a buyer) enter into with a real estate broker, should you choose to be represented by one. It outlines the duties and services that the broker will perform for you, their compensation, and any other terms that you and the real estate broker agree to.
Your broker must exercise reasonable skill and care concerning those duties, and most importantly:
- Perform the terms of any written or oral agreement with you;
- Present all offers to purchase on your behalf in a timely manner;
- Disclose to you any adverse material facts actually known by the broker;
- Advise you regarding the transaction and advise you to get expert advice as to matters the broker knows but that are beyond their expertise;
- Account in a timely manner for all money and property received; and
- Keep you fully informed regarding the transaction.
This is a legally binding contract, and it’s important to understand all of its terms and provisions. There are different brokerage relationships available for you to review with your broker. It is recommended you review the contract prior to signing it. You may wish to seek legal advice from an attorney before entering into this contract.
What is a sales contract?
A sales contract (Contract to Buy and Sell Real Estate) is a written agreement entered into by a buyer and the seller to purchase a home. In general, the buyer agrees to pay an agreed-upon price for the property, and in turn the seller agrees to convey title of the property to the buyer at closing.
If you are using a real estate broker for your home purchase, the broker prepares the sales contract on your behalf for your review and explains the terms and provisions of the sales contract to you.
This is a legally binding contract, and it’s important to understand all terms and provisions of the sales contract prior to signing it.
Many sales contracts contain detailed and complicated provisions that both parties need to review and understand, and if needed, obtain advice from your real estate broker and/or an attorney.
The sales contract also contains many deadlines by which certain aspects of the transaction must be completed.
What is earnest money?
Earnest money is a deposit paid by you as the buyer of a property to represent your good faith and intent to buy the home. It is common for the earnest money deposit to be a significant amount, and it is agreed to in the sales contract. It is very important to understand all terms, provisions, contingencies, and deadlines specified in the sales contract that need to be met for the buyer to be eligible for a refund of the earnest money should the transaction terminate.
In Colorado, the earnest money deposit is generally held by a title company.
What is a title company?
A title company is a company involved in ensuring that the title (ownership) of the real estate (house, condo, townhouse) is legitimate, that the seller has authority to sell it, ensures that any liens or encumbrances are identified, and issues title insurance for the buyer and or buyer’s mortgage lender (if applicable).
You may also hear the term “escrow” used to describe a title company or an attorney that is hired to handle the closing (finalization) of the real estate transaction.
What is a home inspection?
A home inspection is a limited inspection of a property’s general condition, and major components (such as the roof, furnace, plumbing, etc.) usually performed by a trained home inspector. It is highly recommended to conduct a home inspection to determine the general condition of the home, and to identify potentially expensive upcoming home repair items or existing issues.
You should only hire a home inspector that is qualified by training and experience to perform the required inspections. Additional inspections may be necessary (such as a sewer scope, structural engineering, etc.).
What is involved with getting a mortgage loan to purchase a home?
Unless you have enough cash funds to purchase a home, you will need to obtain a mortgage loan and make payments to a lender after the purchase.
How do you choose a lender?
Sources for a mortgage loan include mortgage companies, private investors, banks, and credit unions. A mortgage loan originator (MLO), commonly known as a mortgage broker or a loan officer, is an individual that assists a buyer in the loan process, takes a residential loan application, and offers or negotiates the terms of a home mortgage loan. With some exceptions, MLOs are licensed in Colorado and are regulated by the Division of Real Estate.
It is important to understand different loan options, terms, interest rates and fees.
It is recommended that the buyer contact more than one lender to compare available loan programs, fees and rates.
Once you have selected a lender, the MLO reviews your credit report information, income, available assets, etc. to provide you with a general estimate of a property price range you would reasonably qualify for.
It is crucial for you to be up front, clear, and honest about your financial situation, be proactive in providing any needed documentation and avoid any misrepresentation to ensure a valid mortgage loan approval, and ultimately a successful transaction closing.
What is an appraisal?
An appraisal is an unbiased professional opinion of a home's value provided by a licensed real estate appraiser and is almost always used in the purchase of a home
Usually, the lender chooses the appraiser, and the buyer pays for the appraisal, unless the contract says otherwise. Lenders generally require an appraisal to ensure that the property is worth the amount that the lender will be lending on the property.
What is the final closing?
The closing is the last stage of the real estate transaction. Typically, the closing takes place in person with the buyer and seller at the title company. The final loan and real estate documents are signed, the transfer of purchase funds is verified, and the buyer effectively becomes the new owner of the property. You will get the keys to your new home. Congratulations!
Resources
Homebuyer assistance, counseling, and education
- Federal Housing Administration
- Colorado Division of Housing
- Colorado Housing and Finance Authority
- Consumer Financial Protection Bureau
- Colorado Housing Connects
Division of Real Estate
- Search license status
- Find discipline
- Find Colorado Real Estate Commission approved contracts and forms
- File a complaint