If you’ve purchased a home, you probably know by now that the sale depends on several contingencies written into the purchase agreement. Simply put, contingencies are conditions that must be fulfilled by either party before the house is sold and purchased. Either party may bow out of the deal if the contingencies aren’t satisfied. Here are some of the most common contingencies included in purchase agreements.
1. Home Inspections
The home inspection contingency gives the buyer the right to inspect the home at least once before a specific date. This necessary contingency offers the buyer the right to get out of the contract if they aren’t satisfied with the house’s condition. Alternatively, they may also demand repairs.
The buyer can send a professional home inspector or some other expert like a general contractor or pest exterminator to determine if the house is in good condition. If the house is in an area prone to natural disasters like landslides or flooding, the buyer could get an expert in that field. The expert can make sure the house is built up to a certain standard.
2. Appraisal Contingencies
For the mortgage lender to approve the buyer’s loan request, they must receive a satisfactory appraisal that determines the home’s actual value. An appraisal contingency ensures that the asking price is in line with its assessed value.
Appraisals are done by comparing similar homes sold recently in the neighborhood to ensure the house is in the same price range. The appraiser will also consider other factors like tax records, home condition, renovations, and amenities.
3. Mortgage Contingencies
Around 44% of homes closed in the United States have a mortgage contingency. A mortgage contingency means that the sale is contingent on the buyer obtaining financing from a suitable lender. The buyer must have a good credit score and prove their ability to repay the loan to the lender. This process takes time and is why home sales can take around 60 to 90 days to close. Some buyers avoid this contingency by obtaining a pre-approval before beginning the home buying process.
4. Home Sale Contingencies
A home sale contingency is common among people who’re selling their home to buy another property. The home sale contingency goes towards paying the down payment, closing costs, and mortgage loan. Not everyone can pay for two mortgages or two closing costs, which is why this type of contingency is set up.
5. Clear Title
This contingency means that the home sale is subject to the condition that there are no title or ownership issues. A title company is responsible for running a title report and ensuring that no liens or judgments are outstanding on the property.
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