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First Time Home Buyer - Shedding Light On The Complexity Of Being A First Time Home Owner - Part 1
There are four things that every first time home buyer in Colorado should know. The first of these involves Loan Contigency. Loan contingency is the period of time the seller is giving you to obtain full, formal loan approval. This contingency is usually between 15 and 21 days based on what you and your Real Estate Agent have negotiated on your behalf in the contract. The earnest money deposit that you place into an escrow account at the time the offer is accepted will be put in jeopardy as soon as that contingency for the loan has expired. In fact, pursuant to the terms of the contract, if the loan contingency has expired and you neglect to close the purchase transaction, you can lose your earnest money deposit. For this reason it is extremely essential to make sure you are not agreeing to a loan contingency in an offer negotiation unless you are absolutely sure you will be buying the home and you know you do not need to depend on financing approval to close the transaction. Formal pre-approval will help to eradicate any problems in this area.
Seeking complete pre-approval for financing prior to making an offer on a property is the most effective strategy for any home buyer in Colorado that can help you obtain the best deal possible, especially if you intend to make minimal down payment. The seller is often doubtful of the stability and reliability of the buyer if the buyer is only capable of providing a down payment of 10% or less. This can cause the buyer to lose a significant amount of negotiating ability, by being perceived as feeble buyer rather than a strong one. This is why it is very essential to get full loan approval early on and provide a written confirmation of the loan approval when an offer is provided. This shows it is a done deal, and you are regarded as a cash buyer.
The contract period is the period of time in which all due diligence must be completed, including achieving loan approval, property appraisal, home inspection reports, termite inspection, etc. Give yourself enough time for all essential items to be completed for this vital purchase you are about to make. Typically, purchase contracts are drafted for a period of 30 days, 45 days or 60 days. However, it is really not uncommon for a purchase contract to be crafted with terms in excess of 60 days if the parties involved need to have that long of a grace period to accomplish all aspects of the essential items.
As part of the negotiation in your purchase contract, you and the seller will jointly agree upon the amount of time required to complete all the home inspection procedures that are required. Choosing an outside third party service to complete these inspections is highly advised, especially for a first home buyer in Colorado. You will be provided with a report by the home inspection company that you should evaluate very carefully to make sure there are no material problems in the property that you were not aware of, and which could therefore have an impact on the value of the property. If there are material defects, you and your Real Estate Agent should head back to the negotiating table and discuss a large reduction in the purchase price to mitigate the cost of any necessary repairs. Once your home inspection contingency has run out, you no longer have the leverage to go back and renegotiate the purchase price to correct any issues revealed by the home inspection.
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