Congratulations! You’ve found your next home. It’s a great feeling, but the process doesn’t stop here. Your next step is to make an offer that the seller accepts. Understanding how to make an offer on a house can help you prepare for the home buying process.
We know how exciting buying a house can be, but before you get too far, make sure you get a preapproval letter and choose a real estate agent to work with.
It may seem a bit like putting the cart before the horse, but as soon as you decide to buy a home and before you even start looking, you should begin the mortgage preapproval process. There are two major reasons for this:
Keep in mind that lenders often use the terms preapproval and prequalification interchangeably, even though they’re two different types of mortgage approvals. It’s often better to have a mortgage preapproval. Sellers and their real estate agents will take this more seriously because your information must be verified for an approval.
It’s even better to have a mortgage approval with documentation to back it up, like a Verified Approval Letter (VAL)¹ from Rocket Mortgage ® .
If you’re looking to save money during the home buying process, you might be thinking of going it alone to avoid paying a real estate agent’s commission – but working with an experienced buyer’s agent will likely save you money in the long run. Real estate agents know the market and can offer advice about every aspect of buying a home.
Once you’ve locked down your approval letter, hired a reliable real estate agent and found your dream home, the next item to focus on is the actual process of making an offer. Here’s what you’ll need to do once you've decided you’re serious about a house:
You can usually expect to hear back from the seller’s real estate agent within 1 – 3 days following your offer. The listing agent’s response time may vary depending on whether the home has multiple offers or other circumstances specific to the seller’s situation.
Let’s break down the process of making an offer on your dream house into five simple steps.
The first step in making an offer on a home is to decide how much you’re willing to pay for the property. It’s important to stay within your budget, but you shouldn’t just throw out a random number. You’re looking for that sweet spot between getting the best possible price and not insulting the seller by making a lowball offer. Consider the following before you choose a final price to offer:
Real estate agents are particularly useful in assessing the current market and housing costs. Your agent will complete a comparative market analysis (CMA), which considers the most recent sales in the area to help you assess how the house you’re interested in compares with what the others sold for.
Be sure to ask questions about recent sales that haven’t gone to closing yet, which can help you decide if it’s a seller’s market, a buyer’s market or if it’s transitioning from one to the other.
You may have been approved for a larger mortgage than you expected, but don’t let that dictate how much you offer. Make sure you can live comfortably with the monthly mortgage payment, even if your lender says you can afford more. And don’t offer your entire approval amount, even if you feel you’ll be able to comfortably afford it. Doing so leaves no room for negotiation or the potential for upgrades or repairs.
Don’t know how much to offer? Talk to your real estate agent. They won’t tell you how much to offer, but they’ll let you know what they think a successful offer looks like like.
Contingencies are basically escape clauses in a sales contract that allow buyers to walk away from a sale with their earnest money, which is essentially a type of security deposit. Common contingencies include the home inspection, appraisal, financing, title and – though it’s far less commonly used today – the home sale contingency.
If you’re buying a home and can pay cash for it, you’ll not need to include the financing contingency or the appraisal contingency, which is required by lenders to make sure that the property is worth at least the mortgage amount.
Cash is king, and even if you’re not buying a home with cash, you’ll have to submit a good faith deposit, which is often referred to as earnest money. The earnest money requirement varies from market to market but is typically 1% – 3% of the total home price. That said, the more money you offer, the better your offer looks in the eyes of the seller.
This money will be held in an escrow account and later applied to your mortgage down payment. But you’re probably wondering: If the money isn’t going directly into the seller’s pocket, why do larger earnest money payments matter? Because your ability to produce a large amount of cash lets the seller know that you’re a serious buyer who has the assets to back it up.
Now that you’ve come up with an offer amount, it’s time to convey that offer to the seller. If you’re working with a real estate agent, they'll draw up the offer letter for you. If you choose to write your letter yourself, or if you don’t have a real estate agent, make sure you include the following information:
You or your real estate agent will finalize the offer letter and submit it to the seller or the seller’s agent. After that, all you can do is wait for a response.