Buying a home involves a lot of steps and one of the most important is making your initial offer. At this stage, you’re doing more than just naming a dollar amount you want to pay for the home–you’re also negotiating the different contingencies that need to be in place before you sign off on the deal. If this is your first time buying a home, here are some of the most important things to consider including when writing up a contract.
1. Home inspection
Including a home inspection contingency is a smart move because it gives you an out if the inspection turns up a major defect with the property. For example, you may not want to be locked into buying a home that needs a new roof or has a cracked foundation.
When you’re wording the contingency, be sure to specify what the time frame is for getting the inspection and what the remedies are if the house doesn’t pass muster. For instance, you could ask the seller to agree to make the necessary repairs or give you a credit at closing to cover the cost.
2. Financing
Unless you’re sitting on a pile of cash, you’ll likely need to get a mortgage to buy a home. With lending standards being tightened in the years since the housing collapse, getting approved means jumping through a few more hoops. If you’re worried about not qualifying for a loan, including a financing contingency is a smart way to cover your bases.
With this contingency in place, you have the ability to back out of the contract if your financing falls through. Keep in mind that the seller may put a time limit on how long you have to get approved for a loan if they’re eager to sell the home. They may also restrict the type of financing they’re willing to accept. For example, they may prefer a conventional loan over FHA, VA or USDA loans.
3. Appraisal
Before you can get a mortgage, the lender’s going to request an appraisal of the home to determine how much it’s worth. This usually isn’t a big deal unless the home ends up being valued at less than what you’re trying to get financed for. Then it becomes a problem because you’d have to come up with even more cash at closing to cover the difference.
Including an appraisal contingency allows you to get around that. Depending on how the contingency is structured, you’d either be able to void the sale and walk away, negotiate a different sale price with the seller or increase your down payment to make sure the transaction goes through.
4. Property title
Part of buying a home is making sure the property has a clear title, meaning there are no liens against it and no other claims of ownership that would supersede the seller’s. Executing a title check before you hit the closing table can help to uncover any issues that could push the sale off course. Like the appraisal and inspection, you’ll have to pay a fee for this service but it’s worth it to make sure there aren’t any lingering issues that could complicate things.
Should you waive your contingencies?
Contingencies aren’t set in stone and you do have the option of waiving them altogether, however, this isn’t something you want to do without some serious thought. If something goes wrong along the way–the home turns out to have water damage, your loan application gets denied, the home is worth $10,000 less than what you’ve offered–you could find yourself stuck without these protections in place. If you’re considering letting certain contingencies slide, check with your agent and a real estate attorney first to make sure you understand how that could impact you if there are bumps in the road.
