Home Contingencies to Consider Before You Buy

Did you know that you can make a contingent offer for your new home?

If you have previously purchased a house or you're a first time home buyer, the home buying process can be daunting. Because of the finality of these transactions, there are several conditions listed in a standard home purchase contract that must be met before your closing date. These conditions, in legal terms, are real estate contingencies.

For both you and the seller, there are a number of contingencies to consider. The real estate contract will define the contingency period that you and the seller have to satisfy the agreed upon conditions. If any are not met, the contact may be void or renegotiated.

Types of Home Contingencies

When you purchase a house, you will likely run into several types and varieties of contingencies. Standard contingencies include things like a buyer's inspection of the house and being able to secure a home loan. Contingencies such as these are often considered a matter of course and their presence within a purchase agreement will likely not be contested.

Some types of contingencies are more uncommon and may be disputed. For example, the sellers may wish to condition the sale of their current home, a home sale contingency, on success in finding another house to purchase. If you are in a hurry, you may want to contest this contingency or place a limit on how long you will delay the closing in order for the seller to find another house.

What follows is a list of common contingencies to consider before you sign a purchase agreement:

Financing Contingency

Almost all home sale contracts contain a mortgage contingency. The buyer, must be able to secure a home loan from a lender or other source of financing to purchase the house. This contingency may place a period of time between signing and closing in which the buyer must secure this funding. However, this is not to say that you, the buyer, have no choice in what mortgage lender to accept. You can demand that the contract is contingent upon you getting a loan of a rate of a certain amount or below, or the sale will not go through.

Most contracts also contain an appraisal contingency, this protects you from buying an under valued home. If the appraised value is less than the sale price or loan value the sale contract is voidable.

Home Inspection

A common contingency within a home sale agreement contract is one that gives the buyer the right to at least one home inspection before a certain date. This contingency should also give the buyer the opportunity to get out of the contract, or demand repairs, if the buyer is not, in good faith, satisfied with the condition of the house.

This home inspection contingency also will generally allow the buyer to send in a home inspector and experts of his/her choosing, such as general contractors and pest exterminators. In addition, if the house is in an area known to have natural disasters such as landslides, then getting an expert in that field to inspect the home may also be demanded.

Before you buy a home that is currently being built, you may want to consider asking for a home inspection contingency that would allow you to view the construction at certain points during its construction to make sure that the home is being built up to a certain standard.

Inspection reports may often lead to more negotiations between the buyer and the seller about the purchase price.

Insurance

Most homeowners will want to make sure that their new purchase has home insurance before moving in. However, insurance companies have become more and more reluctant to insure properties and homes in certain parts of the country. If the home you are planning to purchase is one of these areas, a insurance contingency is a good idea .

Title

The title contingency is important for you as the buyer. This contingency will allow you to leave the contract if the seller of the home cannot prove that he or she has valid legal title to the property that is for sale. Generally, you want a clear or "unencumbered" title to the property free of any liens.

A title report, done by an authorized title company, should be a contingency in almost all home sale contracts. When you purchase a house, be sure that you get the whole house.

Learn More About Home Contingencies by Speaking to an Attorney

After considering what kinds of contingency clauses you want in your home sale agreement, put them in writing as part of your offer to buy the house, but take care. Home ownership is one of the largest and most complicated financial transactions you are likely to undertake. Before buying a house, it's a good idea to speak with a local real estate attorney to learn how they can help you with all your real estate transactions.