There are few decisions in life more personal—or consequential—than choosing your next home.
Finding the perfect fit can be tricky: you’re always balancing or even compromising across numerous factors, including:
Once you do find that perfect home, there’s still the matter of buying it. Step two in that process is putting in an offer.
MTC Federal is your partner in your journey to becoming a homeowner.
Before we jump in: This is the second post in our How to Get a Home Mortgage series. The first post was all about the pre-approval process. We’ll assume in this post that you’ve already gotten pre-approved. If not, or if you have questions about that process, check out part one, How to Get a Home Mortgage: Pre-Approval.
Making an offer on a home is more involved than it sounds. You don’t just take cash or a loan to the seller and buy it the way you’d buy a T-shirt or a toaster. Instead, you’re going to have to draft a purchase proposal, an offer that touches on all the key points, and the seller will have to agree to it.
Since making an offer on a home involves so many details, most homebuyers work with a qualified real estate agent or attorney to create their home offer. Here’s a quick-reference checklist for what your offer should include, just to give you an idea what’s involved here.
| Compliant with state law | Contingencies and concessions | |
| Location address | Title company or closing attorney name | |
| Names of buyer and seller | Discount points/lender credits | |
| Offer amount | Expiration date/time | |
| Earnest money | Proposed closing date |
All these items must be present in your offer. Leaving one or more of these elements out of your written proposal or contract could leave you footing the bill for things you weren’t planning on. And in a competitive market, a poorly formed offer could nudge the seller to choose another buyer.
We know this list can seem overwhelming and that your everyday conversations probably don’t include words like “contingencies,” “discount points,” or “earnest money.” But if you’re buying a home, you need to know what they mean.
Let’s walk through these terms with an explanation of each one.
Buying a home is a major event. And your state has legal requirements that will affect your home offer. These laws are intended to protect both the buyer and the seller, and to ensure that there is no discrimination occurring based on prohibited characteristics (such as race or gender). For this reason, it’s wise to have a real estate agent or attorney review your offer letter before submitting it to the seller.
Your offer must include the address of the home you wish to buy.
A home offer is a legal contract. So to make sure the right person is responsible for paying and for collecting payment, you’ll need to be sure to have the correct names of both yourself as the buyer and whoever is selling the property.
Your home offer will include a bottom-line offer amount. This will be what you are paying for the home itself. Before you decide what to offer, make sure you compare the home you’re looking at with similar homes in the area. (Real estate agents call these figures “comparables” or “comps”).
Understanding a home’s comps will help you craft an offer that’s both fair to you and attractive to the seller.
The home sale process takes time. And most sellers will want you to put down a certain amount of cash (earnest money) to make sure that you’re serious (or earnest) about buying the home.
Depending on your area, the home you’re buying, and several other factors, sellers will usually try to negotiate an earnest money deposit of 1 to 2%. But, in some cases, that amount could go as high as 10%. ‘
Earnest money is typically held by either a title company or by the real estate seller’s broker. Earnest money will be used toward the down payment and closing costs if your offer is accepted. If the seller rejects your offer, your earnest money will be returned to you. But be careful: if the seller accepts your offer but you choose not to purchase the home for reasons not specified in your contingencies, you could forfeit the earnest money to the seller.
Many home offers say “this offer is contingent upon (or subject to) a certain event.” When you say that, you’re telling the seller that you want certain conditions to be met before you’ll buy the home. If those contingencies are not met, then you will be free to walk away without penalties (and without losing your earnest money).
Usually, buyers will include financing (in case you’re unable to secure your mortgage) and a home inspection (in case some hidden defect would change your purchase decision) as contingencies. Best practice also includes a timeframe for when the home will be inspected and a detailed checklist of what is being inspected.
Concessions are similar, but usually involve asking the seller to do something. This could be repairs like fixing something revealed in the inspection, or it could be something related to money, like the seller agreeing to pay all or a portion of your closing costs at the closing table.
Your offer will include the name of the title company or closing attorney you are using. Typically, title companies confirm the legitimacy of a home’s title. They can also issue title insurance.
Closing attorneys provide support with purchase and sale agreements and can review your offer letter before you submit it, or help you if you decide to rescind your offer.
Discount points lower your interest rate in exchange for paying an upfront fee. Lender credits, on the other hand, lower your closing costs in exchange for accepting a higher interest rate. Your offer letter should include a proposal for any discount points you wish to purchase or lender credits you’d like to have extended to you.
Your offer letter should include a date and time that your offer expires. In essence, you are offering to buy the house from the seller, but only until a specific time. If the seller accepts and signs your offer before the expiration date, then your offer creates a binding contract.
The closing date is the date that the seller will transfer ownership of the home to you. It is important to know that changes to the closing date could affect your mortgage rate.
If you’re following our blog series as you work toward buying a home, you’re already making progress with your home purchase! You should already have your pre-approval letter (phase 1), and now you’re ready to craft your offer letter (phase 2).
Phase 3, converting your pre-approval, is the topic of our next post.
If you’ve already found your dream home and just can’t wait, or if you have questions about anything you’ve read today, then reach out to our Mortgage Specialists. They can walk you through the entire process from start to finish.
Or give us a call at (800) 442-7792 or come see us in person in any one of our branches.