Making an Offer on a Home

Step 5:

Once you decide to purchase a home, the next step is to put in an oer. Your real

estate agent will be by your side through all this and will be the one who contacts

the seller’s agent to submit the oer. Many times, your oer will include earnest

money. This money will eventually be applied toward your down payment if the

seller accepts your oer. Then, a home inspection and appraisal will occur. These

steps may sound overwhelming, but we’ll break down the process.

Submitting the offer

After the offer

Home inspection

Home appraisal

This step covers:

What to consider when making an offer on a home

How your agent can help you determine the offer amount

Steps in the offer process

You’ll learn:

Closing Date:

In real estate, the delivery of

a deed, nancial adjustments,

the signing of notes, and

the disbursement of funds

necessary to consummate a

sale or loan transaction.

Home Purchase Price:

The nal selling price of a home.

Pre-approval:

Pre-approval is a bigger step

than pre-qualication, but it is

a better commitment from the

lender. This involves completing

a mortgage application and

providing the lender with your

income documentation and

personal records. If you qualify

for a mortgage, the lender will

be able to provide the amount

of nancing and the potential

interest rate (you might even be

able to lock in the rate). You’ll

be able to see an estimate of

your monthly payment (before

taxes and insurance because you

haven’t found a property yet).

At this time, you’ll decide how much you are willing to pay for the home you want to

buy. In some instances, you may want to put in an offer at a lower amount than the

asking price. In other instances, you may need to offer more, depending on the demand

for housing in your area. Your real estate agent’s expertise will help you make the best

decisions. Here’s what goes into putting in an offer on a home.

How your real estate agent helps

As you make your oer, your real estate agent will help you determine

an amount, but in the end, the decision of how much to oer is all yours.

Your agent will show you the prices of homes sold within the area and

how high the demand is for them. If demand is very high and multiple

buyers show interest in the same home, your agent may suggest that you

write a letter to the seller explaining why you love the home. They may

also suggest being flexible with the process, such as the closing date.

What to consider

First, make sure the home purchase price is within your budget, even if

you submit an oer for less. The seller could either counteroer or stand

firm on the listed price. On the other hand, don’t assume you have to

oer your pre-approved or pre-qualified amount. You can oer less. If

you expect to make any renovations to update the home, you will want

to factor in those future costs when you put in your home purchase oer.

Do the windows need to be replaced? Is the HVAC system outdated? Does

the house need a new roof? These are all things to consider. Also, make

sure to avoid oers that are too low. It could cause you to lose the home

you want. You’ll also need to consider if your oer is contingent. That

refers to other needs and conditions that must occur for you to move

forward with the purchase of the home. This could include results from

the home inspection, the appraisal, or your home loan getting approved.

Submitting the offer

(...cont’d)

Pre-qualication:

With pre-qualication the

lender provides the mortgage

amount for which you may

qualify. Pre-qualifying can

help you have an idea of your

nancing amount (and the

process is usually quick and

free), but you won’t know if you

actually qualify for a mortgage

until you get pre-approved.

Home Appraisal:

A written estimate or opinion

of a property’s value prepared

by a qualied appraiser.

Presenting the offer

If you expect to make any renovations to update the home,

you will want to factor in those future costs when you put in

your home purchase oer.

After the offer

Sales contract

Your real estate agent will prepare a sales contract that details the

terms of the oﬀer and present it to the selling agent. Your agent will

talk to the selling agent who will then discuss the oﬀer with the seller.

Oﬀer terms

The seller will go through the terms of your oﬀer and the price to

determine if they accept, decline, or want to negotiate.

Negotiation

If they choose to negotiate, the seller will need to decide the price

and terms they want, and their agent will tell your agent.

Repeat until agreement

This process repeats itself until both you and the seller come to an

agreement. The oﬀer is not binding until all parties sign it and it’s

delivered to you, the buyer. Then, it becomes a ratified sales contract.

Offer process

What a ratiﬁed sales contract is

The documents your lender may need to complete your mortgage

How your interest rate affects your overall costs

You’ll learn:

When multiple buyers make an oer on a home, sellers

sometimes will go with the oer that has a higher deposit

because they perceive these buyers to be very serious about

buying the home.

Mortgage:

A legal document that pledges

property to the mortgage

company as security for

the repayment of the loan.

The term is also used to

refer to the loan itself.

Earnest Money:

You typically will need to pay

what’s called “earnest money”

which shows the seller you are

serious about buying the home.

Think of earnest money as a

deposit you are providing the

seller (usually around $500 -

$1,000 or a certain percentage

of the oer price) that will be

applied to the purchase once

the contract is nalized.

Escrow Account:

The actual account where the

escrow funds are held in trust.

Closing Costs:

Various fees required to conclude

a real estate transaction.

Down Payment:

The amount of cash a borrower

may need to pay in order to buy

a piece of property; equal to

the purchase price minus the

amount of any mortgage loans

used to nance the purchase.

Title Company:

An agency that works with

all parties involved in a

real estate transaction to

research and insure the title

of the home you’re buying,

facilitate the loan closing,

and ensure that the transfer

of ownership is completed

and recorded properly.

Lender:

An organization or person

that lends money with the

expectation that it will be

repaid, generally with interest.

Earnest money

An earnest money deposit is a sum of money that a buyer provides

along with the oer to show how serious they are about buying

the house. When multiple buyers make an oer on a home, sellers

sometimes will go with the oer that has a higher deposit because

they perceive these buyers to be very serious about buying the home.

Typically, earnest money deposits are between 1% and 3% of the price

of the home. They are held in an escrow account and then either

applied toward the closing costs or your down payment at closing.

Earnest money deposits are usually made through a personal check to

the real estate agent or title company. If you back out of the sale, you

may lose this deposit, depending on the terms in your sales contract.

Ratiﬁed sales contract

One of the conditions of getting your mortgage is to send your lender a

ratified sales contract, which is a legally binding contract from both you

and the seller. It should include a closing date—the date at which you

and the seller will execute all documents needed to transfer ownership.

Your lender will then start working toward that date to provide the

money you need to purchase the home.

Necessary documents for the home purchase

Now that everything is moving toward the home purchase, you will

need to focus on working with a lender to get your mortgage. Here are

some examples of the types of documents you can expect your lender

to request.

Congratulations! At this point, the seller accepted your

offer and you have a ratied sales contract. Soon, it will

be time to celebrate, but you need to complete a few

important items before the home is yours. Now, it’s time

to start putting some of that hard-earned money that you

saved to work and take the next steps to obtain

a mortgage.

Pay stubs

W2s

Tax returns

1099s

Social Security award

Child support/alimony documentation

Proof of income

Photo ID

Divorce papers, if applicable

Bankruptcy documents

Proof of rent payments/copy of lease

Gi letter if using gi funds

Social Security card, ITIN or other

similar documents

Business license, if self-employed

Copy of ratified sales contract

Other

documents

Bank statement

Certificates of deposit

Bonds

Retirement accounts

Business accounts

Investment accounts

Asset

statements

Download a checklist of documents needed here.

Interest rate lock

The interest rate on your mortgage could cost or save you thousands of

dollars, depending on the current rate. That’s why it’s important to talk

to your lender so you can lock in the interest rate on your mortgage right

away, which is usually a good option in order to avoid the uncertainty

of rates going up and costing you more. Delays in closing beyond the

mortgage lock-in period could cause your rate to go up.

(...cont’d)

Closing Date:

In real estate, the delivery of

a deed, nancial adjustments,

the signing of notes, and

the disbursement of funds

necessary to consummate a

sale or loan transaction.

Interest Rate:

A percentage of a sum borrowed

that is charged by a lender or

merchant for letting you use its

money. A bank or credit union

may also pay you an interest

rate if you deposit money in

certain types of accounts.

Why a home inspection is a prudent step

The types of problems your home inspector will and won’t

look for

How to handle issues that show up in your inspection report

You’ll learn:

Why an inspection

A home inspection can reveal safety issues, illegal installations, and other maintenance and structural issues

that you would want to know about before buying the home. Depending on the severity of the inspection

findings, you could either back out of your oer or negotiate. While it may be tempting to save a few hundred

dollars and skip the home inspection, it could save you thousands of dollars if the inspection reveals issues.

Walk around the home with the inspector and ask questions as you go. You may get more information than

what is written in the report.

Coordinating the inspection

It is your responsibility to schedule the inspection, but most real estate agents will schedule this for you.

It’s important to have the home inspection soon aer the seller accepts your oer and to find a time for the

inspection that works for all parties, including the seller. This could impact the oer and the sale of the home.

You and your real estate agent will likely want to be at the property while the inspection takes place. The seller

will usually need to leave the home during this event.

The home inspection

During the home inspection, you’ll want to tour the property with the inspector, if possible. If certain areas of

the home concern you, make sure to point those out. You can also ask questions about general maintenance

and care for various items.

Home inspection

A home inspection is a great way to discover the true health of the home you want to

purchase. It can provide peace of mind as well as reveal any issues.

Pests

Asbestos

Lead

Radon

Mold

What the inspector

typically does not

look at

Electrical

Roofing

Gas

Plumbing

Insulation and ventilation

Heating and cooling systems

Major appliances like the

refrigerator, washer and dryer

Fireplaces and venting

Foundation, crawl spaces and the

wall structure

Exterior features like driveways,

deck and surface grading

Interior features like stairways,

garages, basements & windows

What the inspector

typically looks at

Part of the inspection process is getting answers about the home’s structure and condition, so it’s

important to ask questions. If you’re unsure about something your inspector says, make sure to ask for

clarification. The inspection will also be one of the last times you’ll visit the home before your purchase.

It’s a great time to take photos and measurements for items like window blinds and furniture.

To keep track of what you want an inspector to look at, download the home inspection checklist.

After the inspection

Aer the home inspection, you’ll want to take your time going through the report with your real estate

agent. If you find problems, such as a roof that needs replacing, think about how you want to deal

with them. You might ask the seller to either make repairs before you move in or to take money o

the purchase price so you can make repairs once you take ownership. If the seller does not want to

negotiate, or the inspection reveals things like room additions that aren’t up to code, or you discover

other problems that compromise the integrity of the home, you’ll want to determine if you’re prepared

to either take care of these issues or walk away from the sale and continue your home search.

Home Inspection

This is a great time to ask your real estate agent for insights on what might be a deal breaker, and

what is worth negotiating.

If your inspection doesn’t reveal anything that compromises the integrity of the home or only minimal issues

that aren’t worth negotiating, then the home purchase will continue to move forward.

Home appraisal

While an inspection looks for defects in the home,

a home appraisal leverages a highly trained professional

to determine the current appraised value of it prior

to its purchase. In addition to the visual inspection of

the home, the appraiser will take into consideration

recent sales of similar properties in the area, current

market trends, and features of the home like the square footage, the oor plan,

and the general condition of the property. This is another cost you’ll want to

account for in addition to the down payment, inspection, and moving costs.

An appraiser’s role in the homebuying process

What an appraiser will look for

What to do if your home appraises for less than your loan amount

You’ll learn:

Appraiser:

A person qualied by education,

training, and experience to

estimate the value of real

and personal property.

Why appraisals are usually required

A home appraisal will establish a value that will be used to calculate the amount of money that will be lent to

you for the mortgage. This is important to the lender because they want to be sure that they understand the

value of the asset and the risk they take for lending you money on that property.

How an appraisal works

Your lender will schedule the appraisal with a licensed appraiser. Although your lender makes the

arrangement, you are responsible for the payment. You can choose to participate in the appraisal, but it is

not required. During the appraisal, the appraiser will assess the general condition of the home, the age of

the home, the location of the home, lot size, square footage, number of bedrooms and bathrooms, major

structural improvements like remodels and additions, and any additional features, such as an in-ground

swimming pool. Appraisers are trained to avoid giving subjective opinions about the home, its decorations,

or cleanliness. When figuring out the home’s value, an appraiser will consider similar home values within the

area as well as their location.

What an appraisal determines

Basically, an appraisal determines the current appraised value that the lender will use to underwrite your loan.

If the appraisal comes in at less than the purchase price of the home, your lender may not approve your loan

or lend you the full amount.

You will definitely want to discuss your options with both your lender and your real estate agent. If an

appraisal comes in at the same value as the price of the home, or more than that amount, you are good to

move forward with the original loan amount requested.

Go back to the seller and try to negotiate

a lower purchase price for the home

Ask the lender to allow you to order

another appraisal

Walk away from the sale

If your loan is

not approved,

you may need

to do one of

the following: