There are four things that every first time home buyer in Colorado should know. The first of these concern Loan Contigency. Loan contingency is the period of time the seller is providing you to obtain full, formal loan approval. This contingency is typically between 15 and 21 days based on what you and your Real Estate Agent have managed to obtain on your behalf in the contract. The earnest money deposit that you put into an escrow account at the time the offer is approved will be put in jeopardy once that contingency for the loan has expired. In fact, according to the terms of the contract, if the loan contingency has expired and you fail to close the purchase transaction, you can forfeit your earnest money deposit. For this reason it is extremely important to make sure you are not agreeing to a loan contingency in an offer negotiation until you are absolutely certain you will be buying the home and you know you do not need to count on on financing approval to close the transaction. Formal pre-approval will help to eliminate any issues in this area.
Seeking complete pre-approval for financing prior to making an offer on a property is the best tactic for any home buyer in Colorado that can help you get the best deal possible, especially if you intend to make low down payment. The seller is often leery of the stability and dependability of the buyer if the buyer is only capable of making a down payment of 10% or less. This can cause the buyer to forfeit a significant amount of negotiating ability, by being perceived as weak buyer rather than a strong one. This is why it is extremely important to get full loan approval early on and provide a written proof of the loan approval when an offer is made. This shows it is complete, and you are perceived to be a cash buyer.
The contract period is the duration of time in which all due diligence must be completed, including obtaining loan approval, property appraisal, home inspection reports, termite inspection, etc. Give yourself ample time for all due diligence to be completed for this vital purchase you are about to make. Normally, purchase contracts are drawn up for a period of 30 days, 45 days or 60 days. However, it is really common for a purchase contract to be written with terms greater than 60 days if the parties involved need that long of a grace period to accomplish all aspects of due diligence.
As part of the negotiation in your purchase contract, you and the seller will jointly agree upon the extent of time needed to complete all the home inspection things that are required. Utilizing an external third party service to complete these inspections is highly recommended, especially for a first home buyer in Colorado. You will be given a report by the home inspection company that you should review very carefully to insure there are no material defects in the property that you were unaware of, and which could subsequently have an impact on the worth of the property. If there are material defects, you and your Real Estate Agent should go back to the negotiating table and talk about an ample reduction in the purchase price to mitigate the cost of any essential repairs. Once your home inspection contingency has expired, you no longer have the power to go back and renegotiate the purchase price to resolve any issues revealed by the home inspection.
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