Buying a home in the Denver area, The New Rules
Buying a home has changed. The old rules are obsolete, at least for now. At least until this current inventory crunch has passed, but it might take a few years, so let’s use the following as the home-buying rules for now.
Inventory is tight, but not impossibly tight. If you follow these suggestions you will be a successful homebuyer. If you don’t, you might get lucky but the odds are against you.
I’m not trying to scare you, but I want to prepare you.
Not every buyer will have the information that I am providing. But you will have the advantage.
Buyers must be ready to take immediate action, because when you find that house you want every possible advantage. Someone else wants that house too. This means getting everything ready in advance. There will be competition for each property.
So, what’s meant by everything? Under the old rules, all you had to do was get pre-qualified, which meant telling the lender how much you make every month, and he would tell you how much house you could afford. Under today’s new rules you need to complete a full loan application, which means gathering paystubs, tax returns, asset and liabilities lists, and having a credit report run. At the conclusion of this, the lender will give you a pre-approval letter to purchase a house up to a specific amount. Depending on the lender, the pre-approval is good for anywhere from 90 to 120 days.
A pre-approval letter is absolutely required when submitting a purchase offer. There will be multiple offers, and you don’t want to be the only one without a pre-approval letter.
If you are an all cash buyer you’re not off the hook. You will need to provide proof of liquid funds, which will be submitted along with any purchase offer.
Once the pre-approval or proof of funds has been completed, then you can start looking at homes. If you look at homes based on what you think you can afford, which is usually higher than what you can actually afford, you will be disappointed when you continue looking at homes based on the pre-approval maximum amount. They may not measure up to those in the higher price ranges.
Why must we go through all of this? Remember, the Denver area is suffering from a shortage of available homes to purchase. There are more buyers looking for homes than there are available homes. This means that there will be multiple offers to purchase each property, and sellers will not want to waste their time with non-approved buyers, so any purchase offer without a pre-approval will be immediately discarded.
If you are fortunate enough to be an “all cash” buyer, then you will need to submit proof of funds with your purchase offer. (Note: some buyers are able to become cash buyers by taking out a loan against their 401k and using those funds. Then, after they close and take possession, they do a refi loan against the property and use the proceeds to repay their 401k loan. Check with your lender though. There could be a waiting period before you can do this).
When looking at houses, don’t immediately look at those properties at the top limit of your pre-approval. You may need some room to bid up or escalate your offer in a multiple offer situation. Or, if the property does not appraise at your purchase price, you may be asked to bring additional funds to make up the difference between the appraised value and the purchase price. The lender will only loan up to the appraised value.
Once you have had your offer accepted by the seller, the battle is still not over. As real estate professionals who encounter this challenge every day, we are qualified to guide you successfully through every aspect of your home purchase. Lean on us.
You have the right to do a full inspection of the property after you are under contract, and submit an Inspection Objection to the seller. Do not request that the seller fix every petty item on the Inspection Report. He is under no obligation to fix anything, and could very well terminate the contract if he feels like you’re asking for too much. After all, there were other buyers who wanted that house as well, and could exercise his right to terminate.
Once again, we are not trying to scare you. Our goal is to guide you successfully through the process so that you get exactly what you want. This is what we do, and we do it well.