Best Way to Understand Closing Costs

Best Way to Understand Closing Costs

Federal law requires lenders and mortgage brokers to give you a booklet within three days of applying for a mortgage loan.

It’s called Shopping for Your Home Loan, and it’s a well-written guide in plain English.
Download the pdf to your computer or ipad, and consult it as you move through the Homebuying process. It can help you become familiar with a number of important things:

  • how interest rates, points, balloon payments, and prepayment penalties can affect your monthly mortgage payments.
  • Important information about your loan after settlement, including how to resolve loan servicing problems with your lender, and steps you can take to avoid foreclosure.
  • After you have purchased your home, identify issues to consider before getting a home equity loan or
  • refinancing your mortgage. Finally, contact information is provided to answer any
  • questions you may have after reading the booklet.
  • Glossary of Terms in the booklet’s Appendix.

RESPA is a federal law that helps protect consumers from unfair
practices by settlement service providers during the home-buying and loan process.


Read Guide to Settlement Costs

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Buying your Home: step-by-step

Buying your Home: step-by-step

The Colorado Division of Real Estate is committed to protecting consumers, and this is their step-by-step guide to “The Buying Process”:

Determine goal or outcome: A good decision is the result of thoughtful planning. A buyer should establish certain criteria including: affordable price range; style and size of home; location; lot size; school locations and access to facilities such as shopping, medical care and businesses. Real estate brokers can offer assistance in these areas.

See a mortgage lender: Many buyers find it is an advantage to be pre-qualified or pre-approved for a mortgage before beginning to shop. The qualifying process includes evaluation of available income and long term monthly expenses and past credit history to determine what type of mortgage financing is available to a prospective purchaser. A credit report is utilized by the lender to verify that the loan applicant’s credit is in good standing or identify problems that need to be addressed.

Establish brokerage relationship: When you have decided what type of broker relationship and services meets your needs, and after having interviewed enough brokers to feel comfortable with your decision, it’s time to finalize your decision with the broker you have chosen to work with. Your broker may ask you to sign an exclusive right to buy agreement to formalize the brokerage relationship. All Colorado approved forms advise parties to seek legal counsel if you are not sure about the meaning of consequences of the agreement. If you choose not to sign the agreement, the relationship between you and your broker will be “transaction-brokerage” by default according to Colorado License Law.

Preview properties: Once you have established a relationship with a real estate professional, discuss what types of properties and neighborhoods might meet your needs and price range. Plan on previewing several properties that you and your broker have selected as potential matches to your criteria.

Narrow the list: You will probably want to revisit those properties that seem to meet your needs. A closer look will likely bring more questions to mind that the owner or your broker can help answer for you. When you decide that you have found a property you would like to own that meets all of your criteria, it’s time to talk to your broker about making an offer. This may also be the time to consider what kinds of special assistance and information you may need from other professionals such as home inspectors, engineers or attorneys.


Make an offer:

Contract: An offer for the purchase of real estate must be in writing to be valid. The Colorado Real Estate Commission requires that every licensee use a contract form approved by the Real Estate Commission unless the contract is drawn by the seller or buyer or the attorney for the buyer or seller.

Contingencies: Since every offer to buy is unique, the Real Estate Commission approved contract allows for you and your licensed broker to make the contract contingent on certain things such as approval of financing, a satisfactory home inspection or the sale of your current residence. It is important to include those contingency items in your contract to eliminate misunderstandings about what circumstances will allow you to complete your end of the bargain.

Time is of the essence: Your offer allows you to make decisions regarding when to close on your new property and when you can take possession and what remedies are available if the contract dates are not met.

Acceptance, Rejection & Counteroffer: Your contract should give the seller a specific period of time to consider the offer. If your deadline is not met you have no obligation to continue with the purchase. If your offer is rejected either by notification from the seller or by no response you can decide whether to amend your offer or consider other property. If the seller wishes, he/she may decide to change the terms of the offer and give you the opportunity to consider the terms as modified. At this point your original offer is rejected and you can accept or decline the counteroffer.

See Your Lender: If your offer to purchase is accepted, the next step is to contact your lender. If you are pre-approved or pre-qualified, you are several steps ahead. If not you should make an appointment to make application for your new loan as soon as possible. Your lender will want a copy of the contract signed by you and the seller. In most cases the lender will arrange for an appraisal of the property to ensure that the value of the property is sufficient to allow a loan for you and your new home. During the next few weeks the loan underwriting process will continue until the lender makes its final decision to grant or deny your loan. In the meantime, they may request more documentation or clarification of your credit worthiness or more information about the property itself. Once the loan is approved the closing date can be set. At closing, the final paper work is reviewed and signed, and the funds change hands. After closing you can take possession of your new home subject to the terms of your contract.

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