Frequently Asked Questions

What is the first step to buying a home?

Finding out what you can afford is one of the first steps you need to take, which can be done by pre-qualifying for a home loan. A pre-qualification is a simple estimation that considers several factors, but primarily your income. There are no guarantees with a pre-qualification, but it will be expected of you when you make an offer on a home

What can I afford?

Knowing what you can afford is the first rule of home buying. That depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts. 


The price you can afford to pay for a home will depend on six factors: 

  1. Your gross income.
  2. Your outstanding debts.
  3. Your credit history.
  4. The amount of cash you have available for the down payment. 
  5. The type of mortgage you select.
  6. Current interest rates.

What is the standard debt-to-income ratio?

A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. For example, assume your gross income is $4,000 per month. The maximum amount for monthly mortgage-related payments at 28% would be $1,120 ($4,000 x 0.28 = $1,120).


Your lender will also look at your total debts, which should not exceed 36%, or in this case, $1,440 ($4,000 x 0.36 = $1,440). In most cases, 43% is the highest ratio a borrower can have and still get a qualified mortgage. Above that, the lender will likely deny the loan application because your monthly expenses for housing and various debts are too high as compared to your income.

What does MLS stand for and how does it work?

The Seller hires a Real Estate Agent to help find her a Buyer for the home she is selling. On the Seller's behalf, the Real Estate Agent then "lists" the Sellers' home with a Multiple Listing Service (MLS). MLS is a service through which all Sellers' Real Estate Agents publicize and advertise their client's listings. The goal is that other Real Estate Agents who represent Buyers and who also subscribe to the MLS, will see a particular listing that their Buyer might like. If that Buyer Real Estate Agent's efforts contributed to the sale of Seller's home, then the commission that the Seller's Real Estate Agent receives from the Seller at closing will be split with the Buyer's Real Estate Agent.

What is PMI insurance?

PMI stands for Private Mortgage Insurance. PMI is an insurance policy that lenders require if refinance loans have a loan-to-value greater than 80%, OR if you are buying a home and are placing less than 20% down. In instances like this, lenders want protection if you should fail to make your monthly payments and they have to foreclose on the property. Lenders want an insurance policy that will protect the bank from loss associated with foreclosing on the property.

How long do I have to pay PMI?

The general rule is that you have to pay private mortgage insurance (PMI) until you have 20% equity in your property. As the law now stands, the burden is on you (the owner) to determine when you reach that status. Periodically, you should compare the balance on your mortgage loan to the current value of your property. When your loan balance is 80% of that value, you should contact your lender to see about terminating PMI payments.

What is the difference between list price, sales price and appraised value?

The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. 
The sales price is the amount of money you as a buyer would pay for a property. 
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

What is the difference between market value and appraised value?

The appraised value of a house is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process. Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker. Either an appraisal or a comparative market analysis is the most accurate way to determine what your home is worth.

What are closing costs?

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include the following: loan origination fee, discount points, appraisal fee, credit report, interim interest, mortgage insurance, hazard insurance, escrow deposits, attorney fee, title insurance, recording fees, survey, home and termite inspections. Unless, these charges are rolled into the loan, they must be paid when the home is closed.

What is title insurance?

Title insurance is a policy that protects against problems with the title to real estate. Although a title search is done when you purchase property, there may be defects in the title which are not revealed by the public records or are missed in the title search. There could be documents in the records, which are incorrect or fail to give important facts. Recorded documents could be improperly executed or fraudulent. There may also be ordinary clerical mistakes, which could affect your title. Other possible "hidden" defects include the incorrect statement of a seller's marital status, undisclosed heirs, and execution of a deed by a minor or incompetent person, forgery, and defects in deeds not apparent on their face. It is also possible that a document could be missed by the title examiner. Any of these problems could make possible a challenge to your ownership of the property.


Owner's title insurance protects the purchaser of real property against risks and insures him against losses from title problems. If your title, as insured, is attacked, the insurer will take legal action as necessary to defend your title. If you should sustain a loss, you are protected up to the full amount of your policy, which is usually the price you paid for the property. The cost of owner's title insurance is very small when compared with the benefit and security it gives.

What's a home inspection?

A home inspection is when a paid professional inspector inspects the home, searching for defects or other problems that might trouble the owner later on. They usually represent the buyer and are paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.

Do I need a home inspection?

Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.

Why do I need an appraisal?

An appraisal is ordered by the lender to placate their fears and paranoia, not yours. The seller, buyer and agent know the value of a home. However, the bank knows nothing about it, so they need a report that describes the home and its value. Since the bank is lending the money, they want to be sure the home's value is larger than the loan amount. Therefore, they hire a third-party-independent, the appraiser, to dispassionately determine the value of a home and make the lender more at ease in lending you money.

Do I need an closing/title company when I buy a house?

Yes, closing companies do the following in a real estate transaction:

  • Conduct the title search and prepare a Title Opinion in order to obtain from the Title Insurance Company a Title Policy on your behalf.
  • Organize the Lender's loan documents and prepare the closing package for the closing.
  • Conduct the closing.
  • Record all necessary documents at the Register of Deeds Office.
  • Assuring that all invoices and parties are paid for repairs, inspections, insurance premiums, and all other closing disbursements and payoffs.

What are contingencies?

A real estate sale that's condition upon a future, pre described event. Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. 
As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.

What is the Homeowner's Insurance?

Homeowners/Hazard Insurance protects you and the Lender against loss due to damage by fire or other natural disaster. Unlike Title Insurance, which just protects your title to the land itself, Homeowners Insurance covers the improvements on the land (namely, the house) as well as the personal property contents inside.

What kind of home insurance should I get?

A standard homeowner's policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, etc. Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents. 


A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home.

What are fixtures?

Fixtures are any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) and automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable.

Is a low offer a good idea?

While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer. 
Full-price offers are more likely to be accepted by the seller. However, here some considerations sellers might look at: 
* Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even at full price, may not be as attractive as an offer without that condition.
* Is the offer made on the house as is, or does the buyer want the seller to make some repairs or to lower the price instead? 
* Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

What are property taxes?

Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate.


In Colorado, property taxes are billed in arrears; taxes assessed are due and payable January 1 of the following year.  For example, 2020 taxes are assessed January 1, 2020, but are not due and payable until January 1, 2021.  Property tax statements are mailed once a year in January.


Taxes can be paid in a lump-sum payment or in two installments:  

  • If paid as a lump-sum, payment in full is due by April 30
  • If paid in installments, the first half is due by the last day of February and the second half is due by June 15

Are property taxes deductible?

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

How do I deduct my home mortgage?

The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. Mortgage interest is not a dollar-for-dollar tax cut; it reduces taxable income. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction.

What are discount points?

Discount points are paid to obtain a lower interest rate on your mortgage. The more points you pay, the lower the rate you may obtain. The longer you own your property and continue to pay on the loan, the more likely it will be that paying points will be advantageous for you. If you intend to hold the mortgage for only a short period of time, the cost you pay upfront may exceed the benefit you will receive from obtaining this lower rate. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000. mortgage would equal to $2,000.

Are points deductible?

Points are deductible for the year in which they are paid only.

What home-buying costs are deductible?

Any points you pay to purchase your home loan are deductible for that year. Property taxes and interest are deductible every year. Closing costs are not immediately tax-deductible, but they can be figured into the adjusted cost basis of your home when you are ready to sell (any major home improvements can also be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees.

Can the County Clerk add or delete names from a deed?

No. A deed is a legal document establishing property ownership. The El Paso County Clerk and Recorder office is prohibited from practicing law. There are specific types of instruments that may be needed based on the current status of ownership of real property, and therefore it is recommended that a title company or real estate attorney be consulted.

What is a lien?

A lien is any legal claim on real property that acts as a security for the payment of a debt or other obligation. If the debt is not repaid as promised, the lender or the lien holder can foreclose its claim on the property and force a public sale to pay the debt.


The most common form of lien on property is a mortgage. While all mortgages are liens, not all liens are mortgages. Other types of liens are commonly encountered and part of the work of the real property attorney is to check for outstanding liens at the time a real estate transaction closes. These include such things as judgment liens resulting from a court judgment against the owners, mechanic's liens resulting from recent improvements to the property, liens for unpaid taxes, and liens for unpaid municipal utilities such as water and sewer. Often, if a seller is divorced, the divorce decree will provide the ex-spouse with a lien on the couple's property to be paid at the time of sale.

What is a Planned Unit Development (PUD)?

A Planned Unit Development is a group of homes, which are subject to recorded restrictions and covenants. When you buy a property in a "PUD" you agree to honor these restrictions and covenants. You should be given a copy of these documents when you enter into a contract to purchase a PUD.


Generally, if you live in a PUD, you will have homeowners' association and you will have to pay dues for services provided by that association. These services may include maintenance of private roads, trash collections, upkeep of common areas (which are owned by the association), maintenance of recreational facilities, and social activities sponsored by the association. Your dues are mandatory, and if you don't pay them, the association may obtain a lien against your property. There may be an architectural control board, which must approve any changes you make to the exterior of your home. If you are considering the purchase of a home in a PUD, be sure to carefully read all the documents and examine the financial status of the homeowners' association.