Homebuying is a long process for both the buyer and the seller. Sometimes it feels like a minor miracle even to get to that point. While you are both close to the finish line, there are still a few essential steps to get you to the finish line. One of the steps is setting up a list of contingencies that both the buyers and sellers have to abide by. What are the most critical contingencies? Which should you never give up?
Home Inspection Contingency
A home inspection is vital for the buyer, so they know what kind of issues a house has. If they don’t get one, then they don’t know about all the potential costs above the mortgage they will be taking on. Having the contingency for the seller is essential so they know within a specified period what things they will be responsible for fixing or negotiating for. Usually, a contingency must be done seven days from when the contract is signed. The contingency allows the buyer and seller to negotiate on any issues and who will pay for things and what things will and won’t be haggled over.
The financing contingency is pretty straightforward. The lender and seller want evidence that the buyer has the financial ability to pay for a loan over the next 15 or 30 years of the loan. They want to see the records that prove you have the cash for the down payment as well as the job history to provide for the monthly mortgage payment. The lender needs all the records to make sure they are making a sound investment. The financing contingency will be in the contract and can be flexible, but usually is required within 14 days.
To be able to afford a house, most people need to sell their previous residence. This contingency is to give the seller or buyer the time to sell or buy another home before they can sell or buy. As house buying and selling is a fluid situation, this contingency will protect the buyer and seller from conditions that may be beyond their control. If a buyer needs to sell their house before purchasing yours, a contingency will protect the buyer from having to buy the new home until they sell their home.
The appraisal contingency may be the most important one. If you have this in your contract, it can save you money, or give you the ability to back out if the home appraises below your offer. If your proposal is $355,000 and the house only appraises for $350,000, the lender will expect you to pay the $5000 difference. There are several options here. The buyer can make up the difference by paying with cash. The buyer and sellers can negotiate a lower price. You may be able to walk away if the price is too high, but you could lose your earnest money. However, if you have the appraisal contingency, you have these options that if the appraisal is lower by 5 or 10%, you can walk away if the seller isn’t willing to negotiate.
There are all kinds of contingencies available to a buyer and seller, but these are the most common. While most people are fair and civil when it comes to buying and selling, contingencies make sure the law protects them from being taken advantage of.