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Offer to Purchase Overview

Offer to Purchase Overview

  • Once you have identified the home you want to buy, you submit an Offer to Purchase, a document that outlines the key terms of your proposal to purchase the property. The most important item in the Offer to Purchase is the proposed property purchase price but you also disclose the proposed down payment and loan amount so the document impacts the mortgage process as well.

    The seller reviews the terms of your offer and compares it to other potential buyers.  While purchase price is usually the most important criteria, property sellers also consider other personal and financial criteria for potential buyers.  If you are making a large down payment, the seller may want to understand the source of your funds.  If you need a large mortgage, the seller may confirm that you are pre-approved or can qualify for the loan.

    The seller wants to be confident that the transaction will close with the buyer he or she selects. If the seller accepts your Offer to Purchase then you are under contract to purchase the property and the next step is submit your loan application and for the lender to process mortgage. The Offer to Purchase typically expires after a set period of time – typically 30 to 60 days from the date your offer is accepted by the seller – so you want to make sure you can close your mortgage within that time period.

    This is why it is important to select your lender and get pre-approved for your mortgage before you select a real estate agent and find the property you want to purchase – so that the buyer knows you can afford, and are pre-approved for, the mortgage you are proposing in the offer to purchase. Being pre-approved adds validity to your Offer to Purchase and the added certainty that your mortgage will close can make your offer more attractive if there are multiple bidders for the property.  In short, home sellers want to make sure that your offer is real and actionable.

    Use our free get pre-approved form to get approved and compare loan terms for leading lenders. The form is easy-to-use, no obligation and does not impact your credit. Getting pre-approved enables you to submit home purchase offers with confidence and helps your offer stand out.




  • As a buyer you also want to feel confident in the property purchase terms you are proposing.  You want to make sure the purchase price reflects the fair market value of the property for several reasons.  First, nobody wants to overpay for a home.  Second, if the property purchase price is significantly higher than the market value of the property, this can create an issue when you apply for a mortgage.  If the actual property value is lower than the agreed upon purchase prices you may be required to make a larger down payment to qualify for your mortgage.  Buyers should work with their realtor or real estate agent to make sure they submit a competitive but fair and reasonable offer for the property.

    The Offer to Purchase is also important because your lender reviews the document when you submit your mortgage application.  The lender wants to understand the terms of the purchase, how much you are putting down and what size mortgage you need.  The offer to purchase may also provide summary information about the property, including the address, that the lender uses.  The lender also wants to understand the length the Offer to Purchase is valid for so they know how long they have to process and close your mortgage.  Lenders want to make sure that they can fund your mortgage within the required time frame so that they do not delay the mortgage process.

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    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
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    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
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    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
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    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
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    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
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    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
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    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
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    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

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    Current Mortgage Rates as of December 11, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael


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