Step 6: Make an offer
Once you find a home that you like and can afford, it’s time to make an offer. Houses have what’s called an "asking price." That’s the amount the current owners are asking for the home. That price is just a guideline. Homes can sell for more than their asking price or less.
When you find a house you want, you make an offer. This is a formal document where you name a price, agree to a small "good faith" deposit (usually a few thousand dollars or less), and lay out the terms of the deal. Your real estate agent will write the offer, which includes contingencies on financing. That means there will be language that lets you out of the deal if you can’t get approved for a mortgage. In addition, an offer may cover what happens if you can’t sell your current home.
An offer letter is a starting point. The seller can accept the deal or counter with a higher price. At that point, you can stay firm, accept the higher price, or meet them in the middle.
When it comes to price, your real estate agent should help you determine what’s fair. To do that, he or she should consider (and share with you) a number of factors:
- Comps: What are similar houses selling for in the area?
- Competition: How quickly are homes selling and are they going for over the asking price?
- How long the home has been on the market: If a house has languished on the market, it may not sell for the listing price.
Your agent should help you make an offer that has a chance of being accepted. He or she can tell you if it makes sense to offer the listing price, go above it, or offer less. Keep in mind that your agent can only help. You have to be comfortable with what you offer and there’s no guarantee that the seller will accept.
It’s possible in a multi-offer situation to lose out even when you're the highest bidder. A seller may accept an offer that’s all cash or one that offers a faster closing.
The process can be frustrating because you have no control over what the seller does. But it's part of homebuying.
Step 7: Close on your new home
Closing involves a few steps. You have to get a formal commitment from a mortgage lender and take steps to make sure the home fully checks out. Both happen simultaneously and are partly dependent upon each other.
To close your mortgage, you need to decide which lender you plan to work with or if you'll use a broker. A broker will find you the best offer from multiple lenders. This can make sense if you're very well qualified or if you have a challenging loan that not every bank would be interested in.
When you put in a formal mortgage application, you'll need a lot of documents. These include, but aren't limited to:
- last month's pay stubs,
- two years of bank account statements,
- two years of tax returns,
- verification showing where your down payment is coming from, and
- records of any other financial holdings.
If part (or all) of your down payment is a gift from a family member, you'll need papers confirming that the money is a gift and not a loan. The lender will also likely verify employment, including past jobs if you haven't been at your current company for at least two years.
Don’t do anything that will impact your credit score during this process. Don’t take on any new debt or open a new account. Getting a car loan, for example, would change your financial picture, and your bank will notice. Wait until after the closing before doing anything that might impact your credit score or overall financial picture.
While you’re putting your finances together for the mortgage lender, you'll also have a few things done at the home you plan to buy. The first is usually an appraisal. That’s when a trained appraiser comes to look at the home to set a value for it.
Remember that the purchase price isn't the home’s value or tax assessment. The appraiser will look at your possible home in relation to what similar homes in the area have sold for. Ideally, he or she will deliver an appraised value that’s equal to or higher than the purchase price.
When an appraisal comes short of the purchase price, the lender may offer you a loan for the appraised value of the property. If that happens, you can try to negotiate a lower price, cover the difference yourself, or try to split the difference with the seller.
After the appraisal comes a home inspection. You hire a licensed inspector to look at the home and see if anything is wrong with it. As the buyer, you have every right to accompany the inspector and check things out for yourself. Do things like use the bathroom and turn on the stove to make sure there are no problems. While you’re doing that, the inspector should be looking for issues that you may not see, like roof problems or water damage.
If the inspector finds major problems, that can be a dealbreaker. Generally, you go back to the seller and ask for repairs or a change in the price so you can make the fixes later. This is a negotiation and, like any negotiation, it can result in the deal falling apart. You have to decide where your breaking point is and when you're willing to walk away.
If the inspection goes well and your mortgage commitment comes through, there are two remaining steps: a final walkthrough and the actual closing. Typically, a final walkthrough takes place after the current owners have moved out. You take a walk through the home (usually with your real estate agent) to look for last-minute problems.
Maybe a doorway was damaged when the previous owners moved furniture out or a bookcase was hiding an unfinished wall. If you find something, you can demand it be repaired (which would delay your closing) or ask for the price to be lowered accordingly.
Assuming you can jump over these hurdles, it’s time for the actual closing. These vary by state. In some states, you need to pay an attorney to represent you. In others, that’s not required and your real estate agent handles everything.
Expect a few hours where you have to sign a lot of things. You'll get a final closing statement, which may look different from the estimate you received. Ask questions and go as slow as you need to. Mistakes aren't unheard of and, since you’re making one of the biggest purchases of your life, it’s more than acceptable to take your time.
If everything goes well, you'll finish signing, your mortgage lender will transfer the funds to the seller’s account, you'll hand over a certified or cashier’s check for the down payment, and you'll be the proud owner of a new home. Once that occurs, you can move in and begin enjoying all the work it took to get to this point.
Homebuying is complicated, but worth the effort
When you read through all the steps involved in buying a home, it seems daunting and maybe not worth the effort. The reality is that, while the process can be difficult, it’s worth it if you find the right home. Don’t focus on how much you have to do to complete the buying process. Take every step in order and slowly check things off your list.
Remember that at the end of this journey you'll own a home -- that’s a major accomplishment. Yes, the road may be difficult, but it's worth the effort.
Many homebuyers will hit bumps in the road. That may slow things down or even keep you from buying a home you like. Be patient. And if you need it, find someone who can help. There are housing counseling services available for first-time and experienced buyers. They can be a big help.