Before you start the hunt for your dream home, there are a few things to do to prepare. Learning how to buy a house and how much house you can afford will put you in a better position to quickly make a stand-out offer once you find “the one.”

What to do before making an offer on a house

  • Get lender preapproval: Talking with a lender as your first preparation step has several advantages. You can go ahead and get preapproved for a mortgage so you know how much you can borrow and narrow down your search into your approved price range. Be sure to avoid confusing prequalification and preapproval. Preapproval is more detailed and will provide more assurance to the seller.
  • Have a budget: The preapproval amount can act as the cornerstone of your overall housing budget. Drawing one up is crucial to determine what you can comfortably afford in a home. Be aware of the hidden costs of home buying so you can budget accordingly.
  • Find a real estate agent: Your lending agent can be a great source for real estate agent recommendations, as the two professionals work closely together. But of course, friends, family and work colleagues can be good resources too. Shop around, and select the best real estate agent for your needs. They will be a critical part of your home buying process.
  • Ready your earnest money: Once you have found a home you want to make an offer on, you’ll need to come up with an earnest money deposit. This deposit, usually 1 percent of the purchase price, shows the seller you are serious about the offer, and it’s payable when you sign the purchase agreement. So have funds ready and waiting in a bank account. (The deposit will be credited to your overall purchase payment at the closing).
  • Save for a down payment: Unless you are paying in cash and won’t require financing, you’ll usually need at least 20 percent of the purchase price as a down payment to avoid having to take out private mortgage insurance (PMI).
  • Decide where you want to live: With permanent remote work becoming a reality for millions, living within commuting distance of the office is no longer a requirement. You can choose to live in an area with a low cost of living, or one good for families. Once you’ve picked a general area, you can narrow down your search to the best neighborhood for you.

Submitting an offer on a house

Once you’ve decided to buy a home and found one that you love, it’s time to get down to business. Writing an offer that gets a seller’s attention is about standing out from other buyers. Here are the steps you’ll need to take to prepare and submit your offer.

Step 1: Review comparable listings with a real estate agent

Work with your real estate agent to evaluate comparable local listings, aka comps, to determine the right amount to offer. A good rule of thumb is that the more competitive the market, the closer to the asking price you should bid.

Step 2: Know how to time your offer

The housing market is extremely competitive in most areas right now, so for many buyers, getting an offer accepted and into contract quickly is key. If a listing has been on the market for a while and isn’t moving, however, you might have a little more leeway to drive a hard bargain.

Step 3: If you can, offer cash

Offer cash if you can. Not having a mortgage will make the sale much more efficient for you and the seller. Oftentimes, sellers will accept a lower all-cash offer than a higher financed one because they figure it’ll streamline the transaction, and make it more of a sure thing.

Putting an offer on a house: What’s included?

A formal, written offer includes more than just the price you’re willing to pay for the property you’re hoping to buy. Here are some of the other items a home offer should include, or at least allude to (some will be spelled out in detail in the contract):

  • Earnest money: The amount of the deposit you put down at the time you write the contract (but before you close), which goes toward the purchase price of the home. It may not be refundable if you as the buyer back out of the deal. This part of the offer outlines the reasons the deal can be terminated while still allowing you to get this money back.
  • Contingencies: These may include things like allowing you to inspect the property before closing, and conditions that could result in the deal being terminated if issues are found during the inspection. These conditions, which will be spelled out in your contract, are closely tied to your earnest money refund.
  • Address and description: This is the property’s legal address and legal description, if applicable. Self-explanatory, but it’s important to document what you’re making the offer on.
  • Clear title stipulation: This is a mandate that the seller provides a clear title to the property — meaning, they own it free and clear. You don’t want to wind up giving money to someone who doesn’t actually have a legal right to sell you their home.
  • Closing cost details: These details regard any seller’s participation in closing costs or other fees, as well as how certain taxes and expenses will be prorated between the buyer and the seller at closing. Closing costs are a key part of negotiations, and sellers will sometimes cover some of a buyer’s closing costs. (That’s less common now that the market is so competitive, however.)
  • Expiration date: This is the date and time of the offer’s expiration and projected closing date. You don’t want to wait forever, after all. (In a situation where the seller has received multiple offers, you may be asked to submit your “highest and best” offer by a certain deadline.)
  • Other provisions: These could include other state-required provisions or disclosures. They will vary by location, obviously — your Realtor will know what to include.

What happens after you submit an offer?

This is probably the most tense part of the process.

Be patient while the seller reviews your offer

Wait for a response from the seller. It’s the worst, but obviously necessary. Don’t let yourself get too anxious during the waiting game.

If declined or countered, consider a counter-offer

If the seller declines or issues a counter-offer and you still want to buy the home, come up with a more attractive offer and resubmit. It’s important to make sure you can still comfortably afford your counteroffer. If the seller wants more than you can reasonably pay, you need to be ready to continue your home search. The same advice applies if you find yourself in a bidding war. In this competitive market, it’s normal for multiple buyers to compete over the same house. It can be intense, but be sure to keep your cool and not blow your budget.

If it’s your dream home, avoid the deal-breakers

Even if the seller accepts your offer, it ain’t over until it’s in writing — specifically, in a purchase and sales agreement, a contract that makes the deal legally binding. To ensure you get to this step, avoid the big deal-breakers. Common ones can include asking for too many contingencies, asking the sale to include personal property items, demanding a really fast closing date, and other potential turn-offs to sellers. Work with your real estate agent to craft a contract that shows you’re willing to compromise.

If accepted, begin the homebuying process

If the offer is accepted, and the purchase and sale agreement is signed by all parties, you’re ready to move on to the other steps in the homebuying process (finalizing financing and getting a home inspection, for example).

How to back out of an offer

If you start having second thoughts or regrets about your home purchase — aka buyer’s remorse — and want to back out of the deal, what to do? If the offer’s just been verbally accepted by the seller, it’s not that big a deal to rescind it. But if it’s been formalized in a signed purchase and sales agreement, things can get complicated.

“Most real estate offers are binding once the seller accepts, signs and the contract is fully executed,” Hertzberg says. “We draft offers with inspection periods which allow for due diligence and the buyer may have options to potentially cancel the contract depending on the terms.”

A buyer should speak to a lawyer for situation-specific clarity on contract questions. Generally, once earnest money has been exchanged, you risk losing that deposit if you back out.

“There are a few opportunities during the buying process when a contract can terminate and the buyer is not penalized,” Moynihan says, such as “if you have an inspection contingency and something comes up in the inspection that can’t be resolved between buyers and sellers; if you have an appraisal contingency and the appraisal comes back short on the home’s value; or if you have a financing contingency and the bank can’t get your loan approved.”

Making the best possible offer to get your dream home

If you’ve found your dream home, you should do everything you can to make your offer stand out, like making your highest offer first, putting as much down as possible, and forsaking any contingencies or conditions you feel comfortable leaving out.

Offering over the asking price may be necessary, but this is where working with an experienced real estate agent pays off. They will know the current heat of your local market and have expert insight on what it takes to submit a winning offer.

Should you ever make an offer under the asking price?

In a highly competitive local housing market, offering under the asking price can mean a quick loss of the property. Sellers are often receiving many offers, including bids over their asking price.

Still, don’t go against the grain. “I advise my clients to make an offer they feel good about, and that can sometimes mean offering under asking prices,” says Casey Moynihan, a Realtor and broker based in Nashville, Tennessee. “In situations when my buyer is questioning the value, we look at a few things, including days on the market, if the house is currently occupied, neighborhood comps and if there are multiple offers on the property.”

Work with your real estate agent to assess the market at the time you’re making an offer. If you’re willing to take a chance, offering under the asking price can be a good way to save money and stick to your budget.

Next steps in making offers on a house

Once your offer is accepted, and the contract signed, it’s time to get ready for the closing. It usually takes one to two months between your offer being accepted and actually finalizing the transaction and completed purchase agreement.

At the closing, you’ll sign a mountain of paperwork and write a bunch of checks to your mortgage lender (if you have one), lawyers, municipalities, appraisers, title insurers; for a complete rundown, read Bankrate’s guide to closing. And, last but not least: a check to the seller. They’ll respond not in kind, but with keys. And you will take possession of your new home.