How to Make Your Home Purchase Offer Stand Out From the Crowd

The idea is to move into the house of your dreams without breaking the bank.

So, you've decided to do it. You're going to take advantage of today's low interest rates and buy a home. That's great news, but keep in mind we're currently in a seller's market. That means:

• Home values are soaring
• Inventory is low
• Buyers are being forced into bidding wars to find the home of their dreams.

The question then becomes, how do you make an offer on a house that stands out from the crowd without sacrificing your financial well-being?

Here, we'll explore five ideas that can help get you ready to make a successful home purchase offer.

1. Be true to yourself

Before touring your first house:

• Ask yourself, "How much house can I afford?"
• Remember to factor in additional costs, including expenses of homeownership and all the other things you enjoy doing, such as hobbies and travel.
• Come up with a sum that doesn't drain your bank account. You want to have money left over for those other expenses and an emergency fund.

You owe it to yourself to stubbornly stick to your budget. Yes, it will limit the number of houses you can afford to buy, but once you're in a home (even if it's a starter home), you have the opportunity to make it your own.

2. Find a lender and get pre-approved

If you're serious about buying a home, rate shop first. Look for a mortgage lender that offers the lowest rate and best terms. Keep in mind that your credit score takes a minor hit when a lender runs your credit (although it rebounds quickly as long as you pay your bills on time). If you get all your mortgage rate shopping done within 14 days, it will count as a single credit inquiry. Once you've found a lender that's right for you, get a mortgage pre-approval letter. That shows sellers that you're serious and have a lender on standby.

3. Wow them with the earnest money deposit

An earnest money deposit -- sometimes referred to as a "good faith deposit" -- is money you put down to show the seller how serious you are about buying a house. When you and the seller enter into a purchase agreement, the seller takes the home off the market. If you get cold feet, the seller will have to start the process over again.

However, as long as you're working with a real estate agent, an earnest money deposit is held in an escrow account and applied to your down payment. This protects the seller from taking a financial hit if you walk away from the deal.

While earnest money deposits often range from 1% to 3% of the sale price, they can vary due to factors like where you're buying and how hot the market is. In some markets, offering a deposit of 5% will prove to the seller that you're serious about buying the home.

Here's an example of how an earnest deposit works:

• You make an offer on a $300,000 home.
• You offer an earnest money deposit of 5% ($15,000).
• The earnest money deposit is held in escrow until closing.
• If you walk away from the deal without cause, the seller keeps the $15,000.
• When you close on the house, the $15,000 acts as part of your down payment or closing costs.

4. Add an escalation clause

Let's say a home is listed at $375,000. Some offers will come in below $375,000, some will come in at the asking price, and some will be over. If you know the area well and have confidence in the house's value, add an escalation clause. In short, an escalation clause tells the seller that you'll pay a specific amount over the best offer, up to your spending limit. That way, you can compete without blowing your budget out of the water.

5. Be flexible

Unless the home seller has a place to move already lined up, they may be feeling the pinch. If possible, give them the option of extending the closing date so they'll have more time to find their next home. If there are a handful of offers, yours may be the only one that gives the seller breathing room.

The best of times, the worst of times

Now is a great time to sell your home in America. Unfortunately, that means it can be a tricky time for home buyers. If you're on the buying end of the equation, take your time to determine how much you can afford and don't get so caught up in the hoopla that you forget to take care of your financial interests.

And for more helpful information, check out our first-time home buyers guide.