Couple in front of dream home they just made an offer on.

How To Make An Offer On A House

Sean Bryant5-Minute Read
November 29, 2021

You’ve finally found the home of your dreams. After months of late nights looking through online listings and weekends filled with open houses, the perfect home popped up in your dream neighborhood.

The only problem is that with today’s tight housing market, you’re probably not going to be the only one interested in it. That means it’s important to know how to make an offer on a house and what it will take to make sure your offer is chosen over the rest.

Before You Make An Offer

Before you make an offer on a house, let’s take a step back and look at a few of the things you need to consider beforehand. Each of these is going to be critical for making the home buying process as easy as possible.

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Get Preapproved

Before you even begin looking for a home, you should get preapproved for a mortgage from at least one lender. Not only will this process give you a better idea of how much house you can afford, but it will let sellers know you’re a serious buyer and give them a piece of mind that you’ll be able to close the loan if they select your offer.

To get preapproved, your lender is going to require several things from you, including:

  • Proof of income: They want to make sure you’ll be able to afford the home you’re hoping to purchase. To prove your income, you can provide a W-2 from the past 2 years, pay stubs, tax returns from the previous 2 years, and any documents that can prove other sources of income. If you’re self-employed, they’ll want to see past tax returns.
  • Proof of assets: You’ll also need to provide bank and investment statements to prove you have the assets to cover the down payment as well as closing costs.
  • Good credit: Preapproval is also going to require you have a credit score of at least 620 before you’ll be approved for a conventional loan. The higher your score, the better interest rate you’ll receive.
  • Employment verification: Your lender is also going to need to verify your employment. This will show them you’ll have a steady income after the loan closes.

Find A Real Estate Agent

Working with a real estate agent can be a big asset when buying a new home. If your agent is familiar with the area you’re searching, they’ll be able to help you with comparative analysis, making sure you’re getting the best possible deal.

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Set A Budget

Before you start looking at homes, you need to think about your local housing market and decide how much you want to spend. You can start by considering the loan amount you’ve been preapproved for. This is going to be the maximum amount you’re allowed to borrow. Next, use a home affordability calculator to get a better understanding of what mortgage payment you can afford every month based on your income and typical monthly expenses. 

Making An Offer On A House

Now that you’ve found your dream home, it’s time to put in an offer. When making an offer on a home, there are several things you need to consider. We’re going to walk you through a few so you have the best chance at having your offer accepted.

1. Decide How Much You Want To Offer

Having an experienced real estate agent to help you through the home buying process is important. When it comes time to put in an offer, they’re going to be able to help you understand the comparables in the neighborhood. They’ll know how much other homes have recently sold for and how those homes compare to what you’ll be making an offer on.

When deciding how much you’ll offer, you’ll need to consider how much you’ve been preapproved to borrow. You should make sure you leave yourself some room in case you need to negotiate. If it’s a seller’s market, it’s likely the home will have multiple offers and might sell for more than the asking price. With your offer, you’re also going to be offering the buyer earnest money. This is usually an amount equal to 1% – 3% of the offer price. Earnest money is used to show the seller you’re serious about your offer to buy their home.

2. Decide On Any Contingencies

When submitting an offer on a home, you’ll also need to decide if you’re going to ask for any contingencies. Contingencies are clauses added to the offer that protects the buyer from certain situations. Here are a few of the most common contingencies. 

  • Inspection contingency: One of the most common contingencies is for a home inspection. This allows the buyer to have an inspector go through the home to make sure there aren’t any major issues. 
  • Appraisal contingency: This contingency allows the buyer to back out of the agreement if the home appraisal is less than the price offered.
  • Financing contingency: Typically buyers will include a financing contingency to protect their earnest money if they are not approved for financing within a specific period of time.
  • Home sale contingency: If a buyer still needs to sell their current home before they can buy the new home, they will usually use a home sale contingency. This will allow them to back out of the deal if their home doesn’t sell in a certain period of time.

3. Draft The Offer Letter

You may be wondering where to begin to ensure you submit the best offer possible. Now is the time to huddle up with your real estate agent to do the following in order to draft a competitive offer:  

  • Confirm feasibility based on price. Prior to the home search, you probably already asked yourself the question “how much money do I need to buy a house?” If you received preapproval from a lender before the home search then the numbers have already been run and you know exactly how much you can pay. If not, now is the time to take that step before you submit an offer.
  • Run comps and understand the local housing market. Your real estate agent will run comps, which is the process of reviewing recent sales of similar homes to the one you're thinking of making an offer on to determine if the asking price is too high, too low, or just right. Once they share this information, it’s time for you to decide what price you want to offer.
  • Set the offer price, contingencies and timelines. Now that you know what you and your agent think the home is worth, it’s time to consider other factors that should inform your offer price and the other components of your offer. Things like seller motivation (how fast they want to sell) and offer timing (when you should submit) are important to take into consideration when drafting an initial offer. Your real estate agent can fish for information on these topics by talking to the listing agent who represents the seller. They can also determine preference regarding inspection contingency timelines, closing date, financing, and a slew of other factors (beyond price of course) that can influence whether or not your offer is ultimately accepted or rejected.

After You Make An Offer On A House

Now that you’ve put an offer on a home, the waiting game begins. If you’re buying during a seller’s market, there could be a lot of demand, and multiple offers on the home. However, you’ll usually have a decision within the next day or two.

Seller Makes Their Decision

Hopefully, the next time you talk to your real estate agent, it’s for them to tell you your offer was accepted. If that’s the case, the process will start moving forward. You’ll begin working with your lender to finalize the loan and schedule a time for your inspector to take a look at the house.

But if your agent is calling to let you know the seller decided to reject your offer, a couple of things can happen. If there was a bidding war and the seller decided to go with another offer, you’ll be back to square one, looking for a new home. However, the seller might have also decided they weren’t completely happy with the offer you presented and decided to make a counteroffer.

Negotiate The Price Of The House

If the seller decides to send you back a counteroffer, this puts the negotiation process in motion. There are a number of negotiation tactics that buyers can use including countering with an offer that meets somewhere in the middle, staying firm on the offer already submitted, or meeting all of their counter offer demands.

If there are other offers for the home, there are also various strategies you can employ to win a bidding war, including changing your offer from a loan to cash or waiving various contingencies, just to name a few.

Close The Deal

Once both parties agree to all of the terms of the deal, the contract is updated and the house is officially “under contract.” This marks the beginning of the home closing process.

The first major step is usually the home inspection where you hire a professional to find out if there are any issues you may have missed during your showings. Once that is complete more negotiations occur regarding asking for repairs, a reduction in price, or cash from the seller at the closing table to help with your closing costs. Next up is the appraisal, where your lender sends an expert out to assess the value of the home.

If it comes in at or above value, things keep moving along. If not, more negotiation can occur as you try and ensure you don't overpay for the home and the lender feels comfortable approving your loan. Side note: cash deals do not require an appraisal, since there is no loan. Once you are through appraisal the only big item between you and the closing table is the final approval of your loan.

The Bottom Line

Once you’ve found the home of your dreams, you can let out a big sigh of relief. The long and sometimes stressful house hunting process is finally over. Now it’s time to put in an offer that the sellers can’t pass up. By following these tips, you’ll be a step ahead of the competition and in your new home before you know it. If you’re ready to find out how much home you can afford, check out our home affordability calculator.

Sean Bryant

Sean Bryant is a Denver based freelance writer specializing in travel, credit cards, and personal finance. With more than 10 years of writing experience, his work has appeared in many of the industries’ top publications.