Courtesy of Forbes.com
In real estate, a contingency is a condition of the Agreement of Sale that needs to occur for the transaction to move forward. As for the homebuyer, there are many contingencies that you can include in your contract. Below are five common contingencies.
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5 Common Contingencies:
1) Inspection Contingencies
In the homebuying process, inspections are for your advantage, as the borrower. The inspections allow you to get a full picture of the condition of the home. A home inspection covers a general examination of the interior and exterior of the house as well as the systems. There are other inspection contingencies such as mold or damage from wood destroying insects.
Once you have completed the inspections, that’s when the contingency comes into play. You will receive a report for the inspections that you chose and suggestions on how to remediate the home problem. This also gives you the opportunity to negotiate with the seller on the repairs. If there is too much work that need to be done on the home, you have the choice to back out of the sale.
2) Financing Contingency
If you are planning on purchasing a home using a loan, you’re going to want to elect the financing contingency. This contingency gives you time to apply for and receive a mortgage to buy the home. It says that if for some reason you are unable to receive financing, you have the right to look at alternative sources or walk away from the sale.
3) Appraisal Contingency
The appraisal contingency goes together with the financing contingency. An appraisal determines the fair market value of the house. The appraisal contingency ensures that you are protected if the sales price doesn’t fall in line with whatever the fair market value is determined to be.
4) Title Contingency
In real estate, the title to a house is the record of its ownership. It’s a legal document that shows who has owned the home (past and present). It also includes a record of any liens or judgements that have been made against the house. A title company or your attorney can review the title before closing on your new home and resolve any problems so that the title can be transferred to you.
However, in some cases, there may be problems with the title report that can’t be resolved. The title contingency gives you the option to leave the sale.
5) Home Sale Contingency
This contingency allows you a specific amount of time to find a buyer for your current home. If you can’t find a buyer for your house, you have the freedom to leave the sale with your earnest money deposit still intact.