By Dian Hymer
Let's say you've decided to buy a home. After looking around for a while, you find a house that you'd like to buy. You have a generous savings account, but you can't afford to pay all cash for the house. You'll need a mortgage to complete the purchase. Also, you're concerned about the condition of the property. You want to have the house inspected before you commit to buying it.
The above scenario describes a typical homebuyer. Few buyers can afford to pay all cash for a home. And every buyer should have any home they buy inspected by qualified professionals. So most home purchase agreements include a financing contingency and an inspection contingency.
A contingency is a condition that must be met in order for the sale to go through. If the buyers try to satisfy a contingency, but they are unable to, their deposit money is usually returned. In most cases, they are released from the purchase contract without penalty.
Financing and inspection contingencies are the most common home purchase contract contingencies. But, it's possible to have a contingency for any condition that must be satisfied in order for the sale to go through as long as the buyers and sellers mutually agree to include it in the contract.
Any contract contingency should include a time period for the contingency to be satisfied. Financing contingencies typically run for about 30 days from contract acceptance. Inspection contingencies usually have a shorter time frame -- often 10 to 14 days following acceptance.
It's also preferable to have a provision in the purchase contract that states that contingencies will be removed in writing. When contingencies are removed in writing, there's no confusion about whether or not the contingencies have been satisfied.
One standard-form home purchase agreement that's widely used in home sales includes a financing contingency that doesn't specify a date for contingency removal. Rather, it states that the financing contingency will run until the lender funds the buyer's mortgage. Usually the lender funds the buyer's mortgage just prior to closing. With this sort of contingency, you don't know for sure that the deal is going through until the last minute. This can pose serious problems, particularly if the deal doesn't close. It's better to set a date for removing the financing contingency. Ideally this date should occur at least two weeks before closing.
First Time Tip: Sellers like to see offers with as few contingencies as possible. The more contingencies there are in a contract, the more opportunities there are for the contract to fall apart. You should include contingencies in your purchase offer to protect yourself. But, you can make your contract more attractive to a seller by shortening the contingency time frames.
For example, if you are pre-approved for a mortgage, you can shorten the financing contingency by two weeks or so. This may put you at an advantage if you are competing for a home against other buyers. To get pre-approved, you need to complete a loan application and have your credit checked. A lender or loan broker can help you get pre-approved.
The Closing: Try to resolve any issues that might require you to add contingencies to the contract before you make an offer. For example, let's say you see a home you want to buy, but your wife hasn't seen it. One option is to make your offer contingent upon your wife seeing and approving of the property. Your offer would be much stronger, however, if your wife sees the property and approves of it before you make an offer.
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