You may feel desperate to acquire your dream home because you think it may take long before you find a similar property again. However, your finances may be a setback. Of course, you purchase within or below your budget. In a seller’s market, you may have to wait and put more effort into your education before you can make an offer within your financial capacity.

In a buyer’s market, there is the temptation to make very low offers, but if your bid is not fair enough, the seller may move on and entertain other offers. If you are making an offer that is lower than the asking price, at least have enough justifications for it. Provide supporting comps, repair costs, or any other stipulations that may help support your low offer. Otherwise, you have to move on and find another property to target. Allow the home seller to find other potential buyers who may fully accept all terms and conditions of the deal.

The purchase offer

Making a purchase offer should not be mistaken for actually buying a home. The purchase offer may not be the final price after negotiations because there could still be many other factors to consider that are not stipulated in this contract. The purchase offer is a formal document that indicates how serious and determined you are in your intention to acquire the property. Other than you, there could be many other potential buyers who are eyeing the house. If you want it really badly, the offer could serve as your assurance.

If you think your dream home is likely to be sold quickly in a seller’s market, you should immediately submit a purchase offer to make sure you’re in first position to secure the purchase. It is now a common practice to make the offer while the prospective homebuyer is weighing the pros and cons of buying the property. This initial contract could still be easily cancelled, although there may be corresponding costs to do so. The money deposit may also take time to be refunded due to the inevitable processes. You have to understand that sellers also need protection because the longer the home stays on the market, the greater the risks that are incurred.

Pros and cons

Why should you submit a purchase offer? First, you may want to make sure other possible buyers are prevented from buying it. Upon acceptance of the offer, the seller logically expects completion of the deal at the agreed upon price unless there are other valid factors that arise after. Thus, he may refrain from accepting other offers. Second, your negotiation power is bolstered if your offer is the first and the only one so far.

Why should you not opt to make one? You may still be undecided because there are other homes you are eyeing. You should not make a purchase offer if you have issues about the earnest money or deposit not being refunded automatically or instantly. Everything has a process, and that means it could take a few days. You may also have to take into consideration other necessary costs in making an offer like appraisal, home inspection, and credit report fees, which generally are not refunded.

Your financial capability for a home purchase

Buying a home is a significant investment because the price tag is logically hefty. Besides, maintaining the property and making additional improvements in the long run could add on costs. Thus, experts always advise buying a house only if it makes sense financially. You should decide to buy and make a purchase offer only if you are ready to carry on with the financial requirements. Do your research and budget accordingly!

How can you tell if you are financially ready for a home purchase? First you should have enough money to buy a home. If you intend to make the purchase in full and in cash, your budget should be slightly bigger than the purchase price to make sure you can still cover minor expenses that may arise along with the transaction. If you intend to obtain a home loan, you should have more than enough cash to make a down payment. In general, down payments should be at least 20% of the total purchase amount, and can be as little as 3%. It is advisable to make a larger down payment as it could translate to bigger savings in the long run.

Readiness for home financing

It is best to obtain a pre-approval for a home loan before or while making a purchase offer to make sure the deal will eventually proceed without any hassle. If you are buying a home through financing, be sure your source of income is reliable. The lender will not have approve the home loan if it thinks your regular income is not enough to cover both your necessary expenditures and the monthly amortizations. Before the purchase, you should also have your own emergency savings fund, which could cover your regular expenditures for several months in case you lose your source of income – whether through an ailment, a job loss, or other urgent situations.

You should have a manageable level of debt. You are heading for financial trouble if you obtain a home loan on top of several other outstanding loans that you are still servicing. It would be ideal if the mortgage is the only loan you are repaying, so word towards being debt-free (or close to it) prior to taking on a mortgage. Lastly, it pays to have a good credit history. Good credit scores logically translate to lower interest rates imposed on home loans.