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So You’re Buying a Home?
What you need to know about making an offer
Once you select a lender and find your dream home, it’s time to make an offer. Everything that happens from this point forward is equally important and you deserve to know all the details, as well as tips and pitfalls to avoid so you remain in the driver’s seat until you receive the keys to your new home.
You’re Ready to Make an Offer
When making an offer, ask for what you want and be prepared for the seller to counter. It might be as simple as negotiating the final price, clarifying the date you’ll take occupancy, or making the offer contingent on selling your current home. In today’s market it is increasingly common for the buyer and seller to be more creative. Your Realtor is a great resource for you during this step. This article provides some basic guidance from a lender’s perspective.
To close the deal, sellers may be willing to pay a portion of your closing costs and even let you include non-real-estate items in the purchase. These items are called concessions and pose two considerations for your lender.
The amount of closing costs that may be paid by the seller varies by loan program and your down payment. While this list is not inclusive, here are general guidelines of what is allowed:
Conventional financing
- 3% of the selling price in seller-paid costs for loans with 5% down;
- 6% of the selling price in seller-paid costs for loans with 10% down or greater;
- 2% of the selling price in seller-paid costs for all non-owner occupied loans (investment properties);
Government Loans – FHA and VA
- 6% of the selling price in seller-paid costs regardless of your down payment.
First-time buyer programs – certain first time home buyer programs
- 6% of the selling price in seller-paid closing costs. Contact your lender for specifics as these programs may have income limits and other restrictions.
Including personal property in the home purchase is a different matter and may create issues when you go to obtain financing.
- Some personal property has little or no true value, such as the draperies or garage door opener. These items should be detailed on your purchase agreement with the narrative that they are included at “no value.”
- Other items have a value that must be determined before you obtain your mortgage loan, such as furniture, a hot tub or lawn mower. These items truly impact your offer, the price the seller is willing to accept AND the loan amount your lender is willing to extend. Mortgages are not designed to finance items like this, so expect your lender to determine the fair value and deduct it from the purchase price before determining your loan amount. This effectively creates the circumstances where you pay cash for these items outside of the mortgage loan considerations.
Some types of concessions can jeopardize your financing. Beware of a seller offering a vacation, new car or other luxury gifts to entice you to purchase their home. Expect the home value to be inflated to cover the cost of the luxury item. More importantly, it may cause your lender to be suspicious about the viability and value of the home.
Once you and the seller reach an agreement, there are just a few more steps before you get the keys. It’s time to pull out your Good Faith Estimate and verify you have no additional question about the loan type, current rate and the conditions under which the lender will fund the transaction. If the final selling price is the same or close to the amount noted on your GFE then you’re ready proceed. From here, the rest of the process is in the hands of your lender until it’s time for you to sign the final documents at closing and get your keys.
To learn more about the process with your lender, including understanding a Good Faith Estimate, read Buying a Home: Your Office is Accepted, Now What? Or check out the calculators on our site that can assist you in estimating your monthly fees, how long it will take to repay the loan, and many others.
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