How to Make an Offer on a House

You’ve found the home of your dreams! It’s got a state of the art bathroom, backyard patio area for cookouts, and a dining room and kitchen perfect for creating memories with family and friends for many years to come. Now it’s time to learn how to make an offer that will transform this dream into a reality.

Purchasing a home is an orchestrated process involving many parts, and can seem daunting to a first-time home buyer. The paperwork, calculations, and contract deadlines are often overwhelming. Understanding the process and timing of each of the steps, as well as working closely with your realtor and a Herring Bank Loan Officer, will go a long way to simplify your home buying experience.

Before Making An Offer

After finding a house you want to purchase, there are several steps to take before presenting an offer. Avoid buyer’s remorse by doing the following:

    • Get Pre-Approved – Chances are you don’t have enough cash to purchase a house without a loan, so you’ll have to secure financing. Take steps to become pre-approved for a loan from your bank or other lending institution. You don’t want to set your heart on a property that is out of your price range. Check out our mortgage payment calculator, which can help give you a better idea of what your monthly payments will be.
    • Estimate the price of the home you can comfortably afford – Look at your monthly budget. What is your monthly income and what do your monthly expenses look like? What amount can you comfortably afford (click here for our Affordability Calculator) to add into that formula as a house payment? If the loan amount that you’ve been pre-approved for by your bank or lending institution seems too expensive for your budget to bear, it probably is. Be honest with yourself; remain firm on a monthly payment amount that you will feel secure about paying for years to
    • Calculate the Amount of Down Payment You’ll Need – It’s rare, if not impossible, to find a lender willing to finance 100% of the cost of a As a home buyer, this means you must be able to make a down payment of some amount. The cost of the house minus the loan amount equals the down payment required. For most home buyers, this figure can drastically affect the ability to purchase a property. A little research can go a long way, as the amount of down payment required can differ depending on which type of mortgage loan you are using. Some loan programs allow for gifts from acceptable sources and could also allow down payment assistance through Grant and Bond programs. Other factors that can affect this amount include your credit score and your debt to income ratio. Be aware that the down payment does not include the any loan closing fees or other fees that the terms of your contract might require. Closing costs include fees such as lender and title company fees, home owner’s insurance, and escrows for taxes and insurance.
    • Save Money for the Down Payment … Plus a Buffer – Don’t spend your entire savings on a down payment for a house just to get into your home faster or as a way of having lower monthly mortgage payments. Keep extra money set aside for any issues that might arise with your new home — or in your life — immediately after signing closing documents, or years after. An emergency fund should only be used for emergencies; having one can be a great source of peace of mind.
    • Research Locations – Purchasing a home is a big step in a person’s life. Before making the commitment, plan on doing some research. Begin by exploring the neighborhood. If you have children, do the schools meet your expectations? What is the average price for a home in the neighborhood? What is the area’s proximity to important amenities such as parks, shopping, doctors and restaurants? Is the neighborhood crime rate low? Making a well-informed decision about the location of your future home will benefit your family in the long run.
    • Take a “Walk-through” – Avoid falling immediately in love with a property. You’ve undoubtedly heard the old cliché that you shouldn’t ‘judge a book by its cover.’ The same is true of houses. Before making an offer on a home, always perform several “walk-throughs.” Check everywhere for potential flaws, especially places that are easy to overlook such as behind the doors, beneath and behind the furniture, and inside closets. Once an offer is made and accepted, a licensed professional inspector should examine the home for plumbing, foundation, and maintenance issues. If needed repairs are discovered you will negotiate with the seller to repair those items prior to closing.

Making an Offer

You’ve been pre-approved for a loan! You know how much of a down payment and a monthly mortgage payment you can comfortably afford, have an emergency fund set up, have researched the neighborhood in which your dream house is located and given it a “thumbs up,” and have done your own walk-through inspection. Congratulations! You’re ready to make an offer! Here’s what you should know:

What to Include in an Offer

If you have a real estate agent, which is highly recommended for first-time buyers, they will help you write an offer and submit it to the seller or the seller’s agent in writing. The offer will include:

    • The address of the home
    • Your name and the names of anyone buying the house with you, such as your spouse.
    • The amount of your offer
    • Any contingencies you’re requesting (i.e., conditions that must be met before the sale is a completed deal), such as a successful home inspection
    • Any seller concessions you’d like (i.e., things you’re requesting from the seller), such as cash toward closing costs.
    • Items you want to include in the sale, like appliances and window treatments
    • The amount of your earnest money deposit
    • Your pre-approval letter, so the seller will know that you won’t run into any financing problems
    • The date you expect to close
    • The date you want to move into the house
    • The deadline to respond to your offer
    • A deadline for the inspection to be completed, known as the option period
    • A deadline for third party financing to be approved

How Much to Offer?

Making an offer on a house is difficult because if you bid too low, others will outbid you; if you bid too high, you will be throwing money away. This is where all your research comes in to play, as well as the experience of your real estate agent. Other than how much you can afford, here are some additional things to keep in mind:

    • Closing costs: First-time home buyers often fail to take into consideration the costs they will be required to pay at closing when securing a loan. These can amount to as much as 5% of the price of the house. Closing costs should be a factor to consider when deciding how much to offer for a property.
    • The seller’s price: The offer you make will depend upon the seller’s listing price of the home. When determining a price, sellers typically follow one of three paths:
      • Some sellers overprice the house to provide them ample room to negotiate.
      • Sellers that don’t wish to negotiate often list the house at an amount they think they can easily get.
      • Some sellers underprice the house, hoping it will attract many buyers and create a bidding war.
    • Prices of comparable houses: What have similar homes in the same area sold for recently? To ensure true comparability, look for houses in the same neighborhood that are similar in terms of age, size, number of rooms, and that have sold within the past six months. You can also gather information on comparable homes that are currently listed for sale.
    • The real estate market: The market will help determine the amount you should offer for a house. During a “sellers market,” houses are in great demand and buyers should expect their offer to be one of several, which may result in bidding wars that will drive up the price of a home. Conversely, in a “buyer’s market,” you can safely offer less than the house would otherwise be worth.
    • Is the house uniquely valuable?: If a house has something special about it that makes it uniquely valuable to you, consider offering more than you believe it’s worth to ensure that you are the winning bidder. “Special traits” might be sentimental or practical, such as mother-in-law quarters, a perfect office, or a location that is close to your work, schools, or local attractions.
    • The seller’s position: Know the seller’s position when making an offer on a house. Being flexible and catering to the seller’s needs could help you close the deal. For instance, a seller may be willing to take a smaller amount if you are able to close quickly and come to the table with a loan pre-approved or with a cash offer.

Adding Contingencies to an Offer

Most real estate offers contain contingencies — events that must take place within a specified amount of time (such as 30 days) before the deal can be finalized. For example, you may want to make your offer contingent on your qualifying for financing, the house passing certain physical inspections, or your ability to sell your existing house first. The seller may also add contingencies to the offer, such as a condition that he or she has found another house to buy before closing the sale with you.

Thinking Long-term

Negotiating can be stressful, so it’s important to keep your goals in mind. Don’t forget that it’s okay to walk away from the deal if you and the seller can’t agree to terms. There will always be another house. A house is a long-term purchase, so you should take a long-term view.

Herring Bank is here to guide you through the process from start to finish. Give us a call at (866) 236-4779 or request a call below to discover how we can lend the way to your next home!

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