3 steps to take before making an offer to buy your dream house

By ,
Ask a Lender
September 1, 2016 | Updated September 20, 2017


Key Points

Do this before submitting a purchase offer

  • Secure financing
  • Gather the paperwork
  • Decide on earnest money amount

You may be buzzing with excitement after finding your dream home, but before you jump to making an offer there are three important steps to complete to ensure you enter the negotiation with the strongest prospects possible.

Before submitting an offer to buy a house, you will want to make sure your financing is secured. If you have discussed loan options and rates with several lenders, choose which one you would like to go with. The Consumer Financial Protection Bureau (CFPB) also recommends buyers use this time to consider locking in their interest rate.

"Locking your interest rate protects you in case interest rates go up between now and closing," the bureau says. "… Check at the top of page 1 of the Loan Estimate to see whether your rate is locked, and until when."

You also will want to ask your lender for a preapproval letter that can be included in your offer. This way, sellers will know your financing is secure and there should be no funding hiccups during the closing process. Once that is ready, your real estate agent will guide you through the process of making an offer, help you formulate the offer and will likely submit the offer to the seller's agent.

Typically, an offer will include the following, according to the National Association of Realtors (NAR):

  • Purchase price and how property is being financed (all cash, mortgage, etc.);
  • Estimated closing date;
  • Amount of earnest money involved (see more on this below);
  • Included contingencies;
  • Information on how several costs, such as taxes and utilities, will be split and prorated between the seller and purchaser; and
  • A date the offer will expire.

Especially when you are hoping to buy a house that will likely receive multiple offers, it may help to write a letter to the seller. Along with the legal and financial information included in the offer, this letter allows prospective buyers to include the personal, or emotional, reasons outlining why they want to purchase the house. If several of the offers are otherwise comparable, such a letter could push one offer over the top.

If you start to have second thoughts after submitting an offer, you can typically revoke it before it is accepted, but be sure to double check with your Realtor or an attorney to be sure that you won't lose your earnest money or open yourself up to a potential lawsuit. Once an offer is accepted, you will only be able to get out of it as allowed by the terms of the offer, given that it is a binding contract at that point.

Included with most offers is earnest money, which is defined as "a good-faith sum of money given to bind a contract, for example an agreement to purchase real property," according to the NAR.

Essentially, earnest money is a deposit on your offer and your down payment, one that helps show a seller that you are serious about purchasing a home. This deposit is often between 1 percent and 2 percent of the house's purchase price, according to the NAR, although putting down more earnest money can help an offer look stronger.

If an offer is accepted, the earnest money deposit goes into escrow and can be used toward the down payment and closing costs. If an offer is rejected, earnest money returns to the prospective buyer. If an offer is accepted but later falls through, earnest money can usually be returned to the buyer, although it's best to make sure this language is included in your offer.

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