How do I buy the house I’ve been renting?

I was aked the question, “How do I buy the house I’ve been renting?” after church last weekend. The asker, let’s call him George, said he’s been discussing it with the owner and they are willing to talk about it. The house is in Denver’s northern suburbs, an area I’m very familiar with.

The ball is in George’s court, but he’s nervous and unsure how to proceed.

“First of all, George, you need to know if you can qualify for a mortgage, how much cash you will need, and what your payments will be. I can give you contact information for several local lenders who I know will do a good job for you and you can get started.

Once you’ve got all that taken care of, you would want to figure out how much to pay for the house. You need a good idea of what it’s worth. You can offer whatever the owner wants, but even if you’re OK with paying that amount you won’t be able to get a loan for the home if the appraisal doesn’t come in high enough.

Sometimes, owners and tenants in this situation will agree to each pay half for an appraisal, which cost about $400. If you go that route, you can hire whatever appraiser you want, but if you do that you will have to pay for another appraisal to satisfy the lender. You might as well have your lender order the appraisal so it can be used to get the loan.

Another idea is to ask a real estate agent to do a market analysis of the house. Agents often do market analysis’ for free if the owner is thinking about listing their house, but in this case it would be best to offer a fee to the agent, to make it worth their time. (There’s no set fee for this service, and it may cost as much as an appraisal anyway.)

Once you figure out how much you want to offer for the house, you could download a free copy of the Colorado Contract to Buy from the DORA website. You should READ the contract, and you should sit down with an attorney to go over it, especially if you’re not going to be working with a real estate agent.

This contract is several pages long. Much of it is self-explanatory, some of it won’t apply, but most of it is important, and the entire document is legally binding.

You need to understand what contingencies are, and how you can terminate the contract and get your earnest money back rather than be in default and lose your earnest money, should the deal fall apart at any time.

I can give you a general idea of how to fill out the dates chart, but since I won’t be acting as your agent I cannot give you much advice at all.

One thing I would strongly advise, even though you’ve been living in the house and probably feel you know it well, is to get an inspection. Inspectors almost always find issues owners weren’t aware of, and you should protect yourself. You should also get a radon test, and should consider having a camera run through the sewer line.

I also want to bring up title insurance. Normally in Colorado, the seller pays for title insurance. As soon as a property is under contract, the title company should be contacted and they will do an initial title search. The title company can also handle the closing, usually for a fee of a few hundred dollars. It is common practice in Colorado for the buyer and seller to each pay half of that fee.

Once you’re happy with the contract, you sign it and submit it to the seller. If they don’t agree to everything just as it is, they should complete a Counter Proposal and submit that to you. If you agree to the terms in the counter, sign it and you are under contract.

Get a copy of the contract to your lender and to the title company that will be doing the closing. Then, make sure you’re following the timeline established on that first page, and that the seller is doing their part too.

A couple points in the contract that can be sticky – #1 is inspection. What if the inspector finds some big issues you didn’t know about? Another is appraisal – what if the house appraises for a lower amount, or the appraiser requires some work to be done to the house? The title company will sometimes find problems with the title, and this can be a few days before closing. These issues must be resolved or you can’t get title insurance, and then you can’t get the loan. And the other major issue that can occur even up until the time of closing is issues with the loan.

I can’t advise you on how to handle these issues, except to say you should hire a real estate attorney to help you if you’re not going to have a real estate agent representing you.

In Colorado, you and the seller could hire a real estate agent to assist you both, and that agent could help you through all these issues and any others. If the agent is helping both of you, they are called a transaction broker. Or, you could hire an agent to represent you for a fee that you agree on with that agent.

Then again, if you went the ‘normal’ route of buying a house (and working with an agent who is looking out for your best interests), you’d have the advantage of seeing other homes. You might actually find one you like better, who knows?

I think that’s about as far as I can go with answering this question. If you decide to go for it, I wish you the best of luck!

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I write posts on real estate issues and local events in the Denver metro area, especially those *communities between Denver and Boulder, as a public service. My hope is to give people an idea of the ‘flavor’ of our community, in case they’re new or moving to the Denver area.

I am a residential real estate agent, happily helping folks buy a house or sell a house in the beautiful and friendly *suburbs northwest of Denver.

*Arvada, Broomfield, Lafayette, Louisville, Superior, Westminster; also Thornton, Golden, Wheat Ridge, Northglen, Lakewood

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