It’s the home of your dreams. Your offer has been accepted. You can’t wait to get your loan finalized and start moving your furniture in.
But a home inspection reveals a leaky basement. That charming porch is on the verge of collapse. And lurking behind the freshly painted walls are thousands of termites. Time to reconsider.
Contract contingencies are designed to protect prospective buyers from the unknown. It’s impossible to assess all of a home’s problems during the initial tour. It’s also tough to ensure that both you and your home will be approved for financing. Contingencies give you a chance to back out of the contract with a full return of your earnest money in case insurmountable problems arise.
Don’t forget to talk to your real estate agent about including these three contract contingencies:
1. Contingent on home inspection
A professional home inspection is not mandatory for buyers. But 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 $400. 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.
By including a home inspection contingency, you’re free to walk away from a home with your earnest money if the inspection reveals unsatisfactory problems. You will be out the cost of the inspection, but considering the costly glitches that an inspection can reveal, a $400 inspection fee is quite a bargain.
2. Contingent on obtaining financing
You may have been prequalified. You might have even been preapproved. But neither of these is a guarantee that you’ll receive a mortgage.
Both you AND your property have to meet lender and VA criteria before your loan can be finalized. If your home doesn’t meet all requirements, you won’t receive a penny in financing. Make sure your contract allows you to walk away with your earnest money in tow if you are unable to qualify for financing.
3. Contingent on selling your current home
This is a tricky one. Buyers like to make contracts contingent on the sale of their current home. Who wants to manage more than one mortgage?
But sellers hate seeing this in an offer, especially in today’s rocky market. 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 live in an area where this contingency is commonplace. Otherwise, you’ll want to proceed with caution. It’s pretty easy to have your offer rejected by inserting this clause.
Contact Veterans United Realty at 800-985-5723 to find an agent near you who works routinely with military borrowers.