Buying a home is probably one of the biggest purchases you will ever make. While you may hope that everything will go according to plan, it would be a good idea to prepare in case it doesn't.
When you negotiate your real estate purchase contract, you may want to include some contingencies to protect you from certain events.
The most common contingencies
When considering what contingencies to put into your contract, you may find it helpful to know what the most common ones are. They are as follows:
- A satisfactory inspection: Unless you are a home inspector or construction contractor, you may not be able to tell whether the home you want to purchase has any major defects that require expensive repairs. A home inspection will reveal them, and with this contingency, you may have the chance to back out of the deal.
- A mortgage loan approval: This contingency allows you a way out of the deal if you are unable to secure the financing you need in order to make the purchase.
- The sale of your current home: If you currently have a home for sale, you may benefit from adding a contingency to your contract, regarding its sale. The purchase of the new home will not close until the sale of your current home.
- The ability to obtain insurance: If you can't obtain home insurance, there is no point in closing on the home. Make sure that you apply for home insurance as soon as possible in order to make sure you can get your earnest money back.
- A satisfactory walk-through: Before closing, you will do one last walk-through of the home. This contingency protects you in case you find new damage since the last time you or your inspector were in the home.
- A specified closing date: This contingency more often protects the seller. If the deal doesn't close by a certain date, the seller can back out of the deal.
- A satisfactory appraisal: The appraisal should let you know that the home is at least worth the price you expect to pay for it. If the appraisal indicates the value is lower, you can either renegotiate the price or walk away.
Your particular circumstances may require other contingencies. These are just the more "standard" ones that end up in most contracts for the sale and purchase of real estate. Before signing a contract, you may want to thoroughly review your situation to make sure that you are as well protected as possible.