How do I make a strong conventional offer?
A strong conventional offer starts with a pre-approval where the lender has checked your income, assets and credit, not just a quick estimate. Add earnest money you can document, contract deadlines your lender can meet, and any seller credit sized to fit the rules. Whether a seller prefers your offer to an FHA offer depends on the terms, not just the loan type.
Educational answer from Mortgage Expert. Mortgage Expert's licensed loan originator is Shahram Sondi, Florida mortgage broker, Certified Mortgage Advisor™, NMLS 186790. Sources checked .
How it works
Show the financing is real
The CFPB notes that lenders use "pre-qualification" and "pre-approval" in different ways, and neither letter is a loan offer. A letter is stronger when the lender has actually checked your documents. The letter should name the lender and a contact the listing agent can call.
Earnest money is the deposit you put down with the offer. The lender will look at where that money came from, so keep the bank record.
Set terms your file can meet
Your financing and appraisal deadlines should match how long your lender needs. A short deadline only helps if the file can meet it.
If the appraisal comes in below the price, you may need extra cash to cover the gap. Before you shorten or drop an appraisal contingency, know how much cash you could add. Get advice from your agent or a real estate attorney on contract terms.
Seller credits
A seller can pay part of your closing costs. On a conventional loan for a home you will live in, Fannie Mae caps this at 3%, 6% or 9% of the price (or appraised value, if lower), based on your down payment. The credit cannot be more than your actual closing costs, and it cannot pay your down payment.
A credit lowers what the seller nets. Some buyers offer a higher price paired with a credit. The seller looks at the net, and the appraisal still has to support the price.
Conventional vs. FHA offers
There is no rule that makes sellers favor one loan type. The rules do differ. Unless the buyer already has the FHA appraised value when signing, an FHA contract must include an amendatory clause. It lets the buyer walk away without losing earnest money if the appraised value is below the price. FHA appraisers must also note repairs needed to meet HUD's property rules.
Conventional loans have property rules too. Fannie Mae requires repairs when a home has problems that affect safety, soundness or structure.
Two offers, same seller
Illustrative example. This is not a real offer, borrower or quote. Prices and credits are assumptions.
Offer A is $400,000 with a $12,000 seller credit toward closing costs. Offer B is $392,000 with no credit. Both buyers put 10% down on a conventional loan for a home they will live in. Offer A's buyer has at least $12,000 in closing costs.
The math, step by step
- Seller's net before its own selling costs, Offer A: $400,000 − $12,000 = $388,000.
- Offer B nets the seller $392,000.
- Seller credit limit for Offer A at 10% down (6%): $400,000 × 6% = $24,000. The $12,000 credit fits.
- Down payment, Offer A: $400,000 × 10% = $40,000.
Takeaway: The higher price does not always net the seller more. Offer A also needs the appraisal to support $400,000, or the credit and loan may need to change.
Easy things to get wrong
- A seller credit larger than your closing costs is not paid to you. Size it to your actual costs.
- Dropping an appraisal contingency can put your deposit at risk if the value comes in low.
- A letter based only on what you said, with nothing checked, may carry less weight with a listing agent.
- Large or recent deposits in your account need a paper trail. Sort that out before you write offers.
What to do next
Check the seller credit limit that fits your down payment before you write the offer.
Writing an offer soon? Shahram Sondi can check your seller credit, cash needs and lender timing before you set the contract terms.
Check the sources
- CFPB: prequalification vs. preapproval letters
- Fannie Mae Selling Guide B3-4.1-02: interested-party contributions
- Fannie Mae Selling Guide B4-1.3-06: property condition
- HUD Handbook 4000.1: amendatory clause and minimum property requirements
Sources checked . Program guidance and lender requirements can change.
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Educational only. Conventional loan guidelines, lender overlays, rates, fees, PMI, LLPAs, and underwriting requirements can change. Final eligibility depends on full underwriting review. Mortgage Expert, Inc. is not affiliated with Fannie Mae, Freddie Mac, FHFA, or any government agency.
