Are you ready to make an offer on a home and you've been given a contract to sign? Here are some things you'll need to have in your contract with the seller to ensure that you have ways to get out of the sale due to things that are beyond your control.
Home Inspection Contingency
You likely made your decision to make an offer on the home after seeing it one or two times in person. However, you've yet to actually take a good look at the guts of the home to see if it is in good condition. It's impractical for every home buyer making an offer to have the home inspected first, which is why there needs to be a clause in the contract that gives you time to have your own home inspection performed.
There will be a window within the first week or so of being under contract where you can get that home inspection done. If you find things in the home inspection that you do not like, such as a foundation that needs major repairs, then you can walk away from the sale and keep your earnest money.
In addition to your home inspection, you'll need a contingency for your financing. You likely were pre-approved for a mortgage before you made your offer, but that is not a guarantee that your mortgage will be approved. It still needs to go through the underwriting process, which can take 1 to 2 months to happen. If you find out at the end of the process that you are denied a mortgage, you do not want to lose that earnest money because the deal fell through due to things out of your control. That is why you want a financing contingency as well in your contract to help protect you if this were to happen.
You'll also want a contingency for the appraisal of the home. Your mortgage lender will often require an appraisal, and will not loan you any money beyond the appraised value of the home. This means that you could end up owing a much bigger down payment than anticipated in order to make the purchase, which would be impossible to do. Having an appraisal contingency will help protect you in this unique situation where you are buying a home for a price that is far above the appraised value.
Reach out to a real estate attorney for more information about what should be in your contract.