Protecting Yourself In A Sales Contract
During the home buying process many decisions have to be made: Determining how much to offer for a home, whether or not you’d like to ask for seller concessions, and when you’d like to ideally close on your new home are just a handful of the most common decisions that you’ll have to make.
Another decision you will need to make during the home buying process is deciding what home buying contingencies you will include in your purchase offer. There are many common real estate contract contingencies to choose from and need to protect yourself in a sales contract.
Once you find a home that you feel is the perfect fit, it’s extremely important you know which home buying contingencies you can include in your purchase offer.
Below are some home buying contingencies that you should consider including in the purchase offer when buying a home. Read on to find out why these home buying contingencies are important to consider including in your offer.
Earnest Deposit
This is sometimes referred to as a good faith deposit. This is a deposit that a buyer makes that essentially shows how serious they are. The more money you put in earnest the more serious you look as a buyer. However, this money can be lost if the contract or financing were to fall through. The low end is around $500, $1000 is pretty typical, but I’ve seen as high as $10,000+ on some contracts. You will will want to consult with a real estate expert to find out what an appropriate amount is for your contract.
Inspection Contingencies
There are many reasons to have an inspection done when buying a home. You wouldn’t want to buy a used car without knowing what is or isn’t wrong with it, the same goes for a house. If for whatever reason you feel like you want to get out of a sales contract, the inspection period is your best time. By law you can get out of a real estate contract for any reason you see fit if you have an inspection done.
Appraisals
Especially on FHA loans, there is an appraisal rider that protects you. If the house were to not appraise for the purchase price there are a few options. The seller can bring the sale price down to the appraised amount, you can back out of the contract, or you can bring the excess money to closing.
Financing Contingency
If a buyer is purchasing a home with the assistance of a mortgage, a mortgage contingency is a must. A mortgage contingency is one of the most important home buying contingencies to include in a purchase offer for several reasons.
First and foremost, having a mortgage contingency in a purchase offer protects a buyer, should there be an issue with getting mortgage approval. A mortgage contingency should state that if a buyer cannot obtain financing that they will be given their earnest money deposit back. It is possible a buyer can be denied a mortgage even after a pre-approval has been issued and this contingency protects the buyer, should something unexpected happen.
Another important reason to include a mortgage contingency in a purchase offer is because it spells out what type of mortgage a buyer is obtaining, what the loan-to-value percentage will be, and also creates deadlines in which the mortgage approval will be issued.
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