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VA Home Loan Topics

Key Contract Contingencies for VA Buyers to Consider

Contract contingencies are designed to protect prospective VA buyers from the unknown.

It’s impossible to assess all of a home’s potential problems during the initial tour, or to guarantee that both you and your home will be approved for financing, for example.

Contingencies give you a chance to back out of the contract with a full return of your earnest money in case insurmountable problems arise.

There are a host of potential contract contingencies buyers and their real estate agents might consider. So much will depend on your specific situation and the housing market you’re navigating.

Here’s a look at a few common contract contingencies and how they protect VA buyers.

Home Inspection Contingency

VA loans require an appraisal, which includes a broad look at health, safety and marketability conditions of the property. But the appraisal is not as exhaustive as a professional home inspection.

VA loans do not require a home inspection, but most buyers choose to invest in this critical peace of mind. There’s no better safeguard than a thorough home inspection for buyers who are ready to sink hundreds of thousands of dollars into a property.

The inspection usually takes a few hours to complete and costs around $500. A professional home inspector will review all the home’s major systems (electrical, heating, cooling and plumbing), as well as structural components. Most inspectors also evaluate the exterior of the home, from the roof to the footings, for any potential problems. Interior features such as flooring and appliances are also scrutinized.

As the buyer, your purchase offer can make the deal contingent upon the results of a home inspection. If the inspection uncovers problems, buyers can negotiate repairs with the seller or even pay for them on their own.

Buyers can walk away from the deal with their earnest money if they’re not able to come to an agreement with the seller regarding inspection-related issues.

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Financing Contingency

Many VA buyers seek loan preapproval before starting the house hunt and getting under contract. That gives buyers a clear sense of their purchasing power and what it takes to close on the loan. It also shows sellers you’re a serious contender.

But preapproval is not a guarantee you’ll ultimately secure financing.

Both you and your property have to meet lender and VA criteria before your loan can be finalized. Underwriters will take a deeper look at your loan file once you’re under contract, and there’s often a host of conditions that need to be met in order for your loan to move to closing and finally to funding.

While preapproval is a strong signal, some buyers might not be able to close the deal, for all kinds of reasons. Because of that, most VA purchase agreements contain a financing contingency that allows borrowers to keep their earnest money if they’re not ultimately able to qualify for financing.

Financing contingencies are usually for a set period of time, like 25 or 30 days, although duration can vary depending on the lender and your specific situation. The span tends to reflect how long it’s likely to take your loan file to move through the underwriting process.

Buyers could lose their earnest money if their loan falls apart after a financing contingency period has expired. Talk with your real estate agent and your loan officer about financing contingency time lines before making an offer.

Home Sale Contingency

Some buyers might want or need to make a purchase agreement contingent on the sale of their current home.

Sellers might be less than thrilled to see this. A seller has no idea if you live in a highly marketable home or an eyesore in an undesirable area. It’s tough for sellers to know if they should take a chance on an offer with this contingency or hold out for a more solid buyer.

Talk to your real estate agent regarding this contingency. You may be buying in an area where this contingency is commonplace. But in hot real estate markets it can put buyers at a disadvantage.

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What About an Appraisal Contingency?

Appraisal contingencies protect buyers in case the home they want to buy turns out to be worth less than what they offered to pay.

Mortgage lenders will lend the lessor of the purchase price or the home’s appraised value, along with allowable costs and fees.

This kind of contingency is required for VA loans.

A document known as the VA Amendment to Contract is required for every VA purchase loan. This contingency safeguards a VA buyer’s earnest money if the appraisal comes in low.

Other Contingencies

There are dozens of other potential contract contingencies. They’re all hyper-dependent on your specific situation, from the housing market and the seller to your finances and more.

A VA-savvy real estate agent can help veterans and military buyers protect themselves while crafting a strong offer.

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