Denver CO First Time Home Buyer Series – Projecting the Funds Needed to Purchase a metro Denver CO Home (Part 4)

This article will break down the closing costs one should be familiar with when purchasing a metro Denver CO home.

Down Payment – The amount of down payment required will vary based upon financing or what the home buyer wants to put down. There are programs I know which have zero down payment from the buyer and some can go to 20% of the purchase price or more. Basically if a buyer purchases a $200,000 home and makes a 10% down payment, the down payment amount would be $20,000.

Costs of Closing – Traditionally called closing costs, these fees include any fees tied to processing the mortgage in addition to fees charged by the title company to process the closing. The specific fees charged by the lender vary and will typically include a origination fee, credit report charge, application fee and processor fee. Specifics on lender fees should be obtained during the loan application process.

Colorado allows for the purchaser to negotiate the seller’s assistance in paying their closing costs. Most lenders will allow the seller to contribute 3% towards the home buyers closing costs which should cover the buyers closing costs in nearly all situations. Some lenders will allow for more than 3% if needed. Negotiating with the seller to pay the buyers closing costs helps the buyer because they can bring less funds to closing and have more available when they move into their new home.

Your professional Realtor® and lender can guide you through these tricky situations and negotiate these provisions.

There are also additional items which will need consideration.

Earnest Money Deposit – Earnest money demonstrates good faith upon the part of the home buyer and shows the seller that the offer they are making is serious. Here in Colorado when purchasing a property there has to be consideration for the agreement to be valid. That consideration is a good faith earnest money deposit towards the purchase of the home. Upon acceptance of the agreement to purchase the seller is agreeing to remove the home from the market for a period of time pending closing showing their good faith. In return the buyer shows good faith through an earnest money deposit. The amount of earnest money is always a negotiable point and varies from property to property, but a good rule of thumb is to expect an amount of approximately 1% of the value of the property being purchased.

The earnest money check will be cashed and deposited into an escrow account pending closing only when both buyer and seller have agreed to the purchase and sale of the property in question. The entity holding the earnest money is generally the title company which will conduct the closing, but in some cases will be the real estate company of the listing agent. 

Within the agreement there are many dates such as the inspection deadline which protect a home buyer’s earnest money. As long as the parties operate within the parameters of the agreement should the transaction fail to close the earnest money is then to be refunded to the purchaser. Should parties not operate within the protective dates and deadlines the earnest money could be at risk. Earnest money is credited towards the purchase of the property when the transaction closes.

Home Inspection Fees – After there you have an agreement in place for the purchase of a home and prior to the deadline for completing inspections it is a good idea to have a professional home inspector come through the property in order to make an assessment of its condition. The purpose of the assessment will be to identify and potential problems that may currently exist with the property in order for the home buyer to make a more informed decision on the purchase and in some cases negotiate for repairs with the seller.

The cost of a general home inspection in the metro Denver CO region will vary based upon the inspector and the size of the property. Different home inspectors have different rates and we have several recommendations on our service provider page. The costs will generally be $200 and up with special testing such as for Radon being extra (tests for Radon run appx $100).

Any negotiations with the seller for repairs should be completed prior to the inspection objection deadline agreed to by the parties.

Professional Appraisal – If the property is being financed the lender will require a professional appraisal to verify the value of the property that will collateralize the loan. Depending upon the lender this can be an upfront cost to the home buyer or in some cases it can be paid in closing as part of closing costs. Appraisal fees vary upon the type of financing and typically run between $375 and $450.

Pre-Paid Items – These also contribute to the costs associates with closing. They will vary based upon many factors and payment for these can be negotiated from the seller. Items which are pre-paid include the first year of property insurance for the home which insurance companies require be paid in advance, setting up an annual escrow for future property insurance and an escrow to pay future property taxes. Pre-paid interest on the loan that runs from the closing date through the end of the month which is why closing closer to the end of the month decreases a buyer’s closing costs. Also with less than a 20% down payment there may be an upfront mortgage insurance payment.

Next up in the Denver CO First Time Home Buyer Series – The Tools You Need for A Successful Denver CO Home Buying Experience (Part 5).