Before making an offer on a house, there are a few steps you need to tackle first. From understanding your financing standing to getting pre-approved for a mortgage. These important steps will help you understand just how much you can afford before you set your heart on a home.

Get approved for a mortgage

If you want to show sellers that you mean business, you need to get pre-approved for a mortgage. This is a step up from a prequalification and is a more formal review of how much you can afford. A lender will review your financial background and credit score to determine how much they're willing to lend you. This approval is a powerful tool, especially in competitive markets where sellers prefer buyers who have their finances squared away.

Find a real estate agent

A seasoned expert can help you break through the clutter of the housing market and score a great deal. A Realtor does more than just search for properties; they understand the nuances of the market, help craft your offer, negotiate the purchase agreement terms and can guide you through the complexities of the home buying process, including putting together those all-important closing documents.

It’s best to choose an agent who not only has a robust understanding of the market but also clicks with your communication style and home buying goals. If you prefer to go about it solo, you’ll be taking on these challenges alone, so make sure to consult with a financial or legal advisor to assist you along your journey.

So, you've found a house you love and now it's time to make an offer!

Step 1: Decide how much to offer

If you’re wondering how to bid on a house, we’ve got you! Before coming up with that magic number, consider how each of the below may affect your offer.

Evaluating the home

Alright, it’s detective time! You and your Realtor (if you’ve got one on your team) get to play sleuth. Dive into the nitty-gritty of the property’s condition and ask the important questions. Is it a shiny new build or does it have that old-world charm with a few creaks and squeaks? If there are repairs needed, keep in mind that these could tweak how much you decide to offer. From the age of the roof to the state of the plumbing, every little detail matters.

It’s also a good idea to check out similar homes in the area, often called real estate comps. This will help you figure out a good starting price for your bid. Generally, if the market's pretty competitive, you'll want to offer something close to the asking price.

Now, if you’re really falling for the place and can look past those quirks because it ticks all your other boxes, or if you’re worried about someone else snapping it up, make sure your offer shows you mean business. If you’re working with a Realtor, they’ll be your ace in figuring out the best move.

Balancing your budget

It’s easy to set a budget and hard to stick to it. It's tempting to overstretch yourself when a home ticks every box, especially when a bidding war turns up the heat. But you have to keep your cool. When the bidding wars start, remember that the goal isn’t just to win the house, but to comfortably afford it, too—this is also where that pre-approval comes in handy. It lets you know exactly how much you can afford before the bidding begins. You can also check out our affordability calculator which will help you get a rough idea of your budget.

If you have been pre-approved by a lender, the loan amount noted in your pre-approval letter is the upper end of what you can offer.

Step 2: Negotiate the price and terms of the sale

Here’s where your Realtor can really shine. They’ll help you haggle over the price and terms. Whether you decide to go below, meet or exceed the asking price, your Realtor will back you up with their expert advice. Remember, it’s your call in the end, so go with what feels right to you.

Step 3: Provide the earnest money deposit

After your offer is accepted (Woohoo!) you'll need to hand over the earnest money deposit. This is typically 1% to 3% of the home's purchase price. If you have a Realtor, they can help you decide how much earnest money you should offer. In a hot seller’s market, a higher earnest money deposit can make you stand out.

Step 4: Execute the Purchase Agreement

Once your offer is accepted, you'll need to sign a purchase agreement. It's super important to review the contingency clauses in this agreement before signing. These clauses are safeguards for your earnest money and provide options to withdraw from the deal under certain conditions:

• Home Inspection Contingency: This allows you to have the house inspected. If significant issues are found, or if the seller won't address these issues before closing, you can back out of the deal.
• Financing Contingency: This gives you the right to withdraw if you're unable to secure a mortgage despite making a sincere effort.
• Appraisal Contingency: This lets you cancel the purchase if the house's appraised value is less than the selling price.

Before you decide to waive any of these contingencies, it's wise to consult with a financial advisor or another professional.