December 13, 2023
Did you know there are ways to protect yourself from buying a home you ultimately decide you do not want? Or ways to make your purchase enforceable only if you sell your current home?
You can do this using a contingency clause. These are add-on language to your sales contract specifying the buyer or seller will only proceed with the sale when certain conditions are met.
At the FreddieMac official site, we learn, “Contingencies are an expected, normal part of the home buying process, providing both the buyer and the seller a legal way out of the contract if something goes awry.”
Consider each of the following options below. One might be very important for your house-hunting journey.
Home Sale Contingency Clause
If you already own a home, consider using a Home Sale contingency, which makes your purchase of the new home contingent on the sale of the current property. Such clauses are not open-ended, and you must consider the deadline for selling your existing home. If it doesn’t sell before that date, the sales contract could become null and void.
What To Know About The Appraisal Contingency Clause
This is a clause FHA borrowers don’t need to request. Why?
It is automatically included in your FHA loan contract. These loans depend on the outcome of the appraisal. The buyer cannot be forced to buy a home appraised lower than the seller’s price under the FHA loan program.
FHA borrowers get to use this clause without incurring a financial penalty. That is not always true of conventional mortgages. If a conventional loan does not have this clause, you don’t have the protection under it.
Home Inspection Clause
This type of contingency clause requires the home’s sale to depend on the results of a home inspection. If there are issues detected during the inspection, the buyer may be permitted to back out of the sale.
The outcome depends on the specific legally binding language in the agreement. Other options may be possible, but much depends on laws in your state.
Home Loan Financing Contingency
A financing contingency (sometimes known as a mortgage contingency) includes a time limit for getting a mortgage loan. If the applicant is not able to get the loan prior to the expiration of the clause, they can walk away from the sale without having to pay a penalty.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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