Before You Make an Offer on a House

Once the seller signs, your offer becomes a binding contract. Work through this checklist first, from comparables and contingencies to earnest money and closing.

An offer looks like routine paperwork, but once the seller signs it, that offer becomes a binding purchase contract. Every line in it, from the price to the contingencies to the closing date, is a decision you made on purpose. Working through a checklist first helps first-time buyers avoid two classic mistakes: stretching past a comfortable budget, or giving up protections they later wish they had.

Confirm Your Budget Beyond the Price Tag

• Calculate the full monthly payment. Compute the total monthly payment for your target price and for pricier homes you’re tempted by, then update your budget to see the real difference.
• Check your credit reports. An error on a credit report can keep you from the best rate you’re eligible for, and on a 30-year mortgage a higher rate adds up over time.
• Settle on a down payment number. Twenty percent down generally brings the best terms and rates; on a $200,000 home that means $40,000. Under 20% down can mean private mortgage insurance or a higher rate. Smaller down payments are common: in 2017, borrowers took out more than 3 million loans with down payments of 10% or less. Our guide to down payments and PMI covers the tradeoffs.
• Leave cash for closing and move-in costs. Even a large down payment may not be the best use of your savings. You’ll also want money set aside for closing costs and unexpected repairs after you move in.
• Refresh your rate expectations. Rates change daily and affect the price you can afford. A rate just 0.25% higher costs more than $2,000 in extra interest in the first five years and nearly $10,000 over 30 years.
• Look up the home’s disaster risk. Check whether home insurance is available and what it costs for the home you’re targeting, since building codes and energy efficiency also affect insurance and utility bills.

Pull Recent Comparable Sales for the Neighborhood

Your offer price should rest on evidence, not on how much you like the kitchen.

• Ask for recent comparable sales. Research the neighborhood and what has sold at different price points before you settle on a number; an agent experienced in your preferred area can help.
• Time how long similar homes sit on the market. If similar houses remain for sale for a month or longer, you are likely in a buyer’s market, where more homes than buyers tends to give you room to negotiate.
• Match your strategy to the competition. Offer strategies depend on market conditions, competition and your financial readiness. In a faster market, some buyers stand out with a higher down payment, an escalation clause or fewer contingencies.
• Keep the budget line firm. You will likely see homes you like that stretch your budget. The CFPB cautions against falling in love with a home more than your budget can handle.

Decide Which Contingencies You Need and Why

A contingency is a condition that must be met for the sale to be completed. If one is not satisfied, the buyer or seller may back out. The three you will hear about most:

• Inspection contingency. If the inspector’s report reveals a problem you find troublesome, you can cancel the contract rather than absorb a surprise repair.
• Financing contingency. This lets you cancel if you are not approved for a mortgage within the period the contract sets. If approval is not secured within that agreed period, the seller can cancel as well, so the deadline deserves your attention.
• Appraisal contingency. This requires the appraised value to be equal to or greater than the sales price, so you are not paying more than the home is worth.

Offers with few contingencies are considered stronger, and sellers like them because they pose less risk that the deal falls apart. But every waiver removes an exit you might want later.

How Much Earnest Money Is Normal, and When It’s at Risk

• A common starting point is about 1% of the home price. A purchase offer typically states the earnest money you will pay, and 1% of the total price is a usual figure.
• More deposit, stronger signal. A higher good-faith deposit tells the seller you are a serious buyer, which matters when offers compete.
• Know what puts the money at risk. Backing out under a contingency that fails protects your deposit; walking away for a reason the contract does not cover may not. Read the deposit language before you sign so you know exactly which situations let you leave with your money.
• Get it in writing. Real estate contracts must be written and signed by both buyer and seller, so every promise about the deposit belongs in the contract itself.

Questions to Ask About the Home’s Condition

• Who schedules the inspection? Many buyers are surprised to learn that finding and hiring an inspector falls on them, not the seller. Your agent may suggest providers, but what matters is that you get an accurate assessment of the home’s condition, ideally soon after your offer is accepted.
• Is insurance available here, and at what price? Ask about the disaster risk for the specific home and whether coverage is available. Where insurers hesitate, costs can run high.
• What will the home cost to run? Building codes and energy efficiency affect both insurance and utility bills, so factor them into the monthly picture.
• Does anything feel wrong? The CFPB’s advice is direct: trust your gut. If something feels off, speak up, and consider that leaving a deal you’re unsure about can beat signing one you regret.

What Your Agent Should Put in the Offer

A complete written offer lays out the price, timing and terms under which you are willing to buy. Before it goes out the door, confirm it includes:

• The price and your financing type, including the kind of loan you plan to use.
• Your earnest money amount and how it will be handled.
• The contingencies you chose, with their deadlines.
• A proposed closing date and a date when the offer itself expires.

A few agent questions belong on the same checklist:

• Who does your agent represent? Agents can represent the buyer, the seller or sometimes both, and state laws can require disclosure. Ask whether your conversations are confidential and how the agent is paid.
• What does the buyer’s agent agreement say? If you hire an agent to represent you, you will sign an agreement explaining how they are compensated. Understand that fee before you sign.
• Is your financing documented? A preapproval letter supports the financing section of your offer. Our walkthrough of getting pre-approved for a mortgage lists what to gather.

Then expect negotiation. The seller can accept your offer as written, deny it, or counter with terms of their own, and you can counter back until you agree or someone walks away.

Know Your Timeline for Inspection, Appraisal and Closing

• Schedule the inspection early. Book it as soon as the contract is signed, since the results drive any repair negotiations.
• Stay ahead of document requests. Even after a preapproval or an initial Loan Estimate, your lender may ask for more documentation. If your pay does not arrive as a steady paycheck, for example from freelance or contract work, plan on supplying additional records.
• Watch for a revised Loan Estimate. As the lender fills in the remaining details, some figures on the form may change.
• Shop for closing service providers. Closing involves services such as title insurance, and you can usually choose some providers yourself. Borrowers who choose their own providers often save money, so start researching early.
• Take the signatures seriously. There is a lot of paperwork between an accepted offer and closing, and taking time to understand what you are about to sign is worth it.

Careful

Scammers target homebuyers days before closing through email phishing schemes aimed at down payment and closing cost savings. Treat any last-minute change to payment instructions as a red flag, and confirm them with your settlement company before wiring anything.

Related guides

• How Much Cash Do You Need to Close on a House?: what to budget beyond the down payment, from lender fees to prepaid costs.
• The Loan Estimate and Closing Disclosure, Line by Line: how to read the two key forms your lender sends after your offer is accepted.

Readers also ask

How much earnest money should a first-time buyer offer?
Around 1% of the home price is a common figure, and a larger deposit signals a serious buyer. Commit only what you could lose if you walk away for a reason your contract does not cover.

Which contingencies matter most for first-time buyers?
Inspection, financing and appraisal are the common ones. They let you cancel or renegotiate if the home has problems, your loan falls through, or the appraisal comes in below the sales price.

Can I back out after the seller accepts my offer?
It depends on your contingencies. If a contingency is not met, the buyer or seller may back out; without one, you may put your earnest money at risk.

What happens right after my offer is accepted?
Schedule a home inspection, respond to your lender’s document requests, and watch for a revised Loan Estimate as costs firm up. You will also choose providers for services such as title insurance.

This guide is general information about U.S. mortgages, not financial, tax or legal advice. Loan terms depend on the lender and on your credit, income and property, so confirm the details with your lender, and see consumerfinance.gov for official guidance.