One essential component that should never be overlooked in a home-buying contract is the inclusion of contingency clauses. These are provisions that allow certain conditions to be met before the contract becomes legally binding to the buyer and seller.
Contingency clauses act as a safety net in a home purchase contract. They protect you from costly repercussions, such as losing your initial deposit or lawsuits, if you back out of the deal.
Common types of home purchase contingencies
Different types of contingency clauses can be included in a contract, depending on the prevailing circumstances and the needs of the parties. Some of the most common contingency clauses are listed below:
- Financing contingency: This clause allows the buyer to cancel the contract if they cannot secure a mortgage loan within a specified timeframe or at favorable terms. It protects the buyer from losing their money deposit or being sued by the seller if they fail to obtain financing.
- Appraisal contingency: With this clause, a buyer can back out of the deal or renegotiate if a home is appraised for less than the purchase price included in the contract. It protects the buyer from overpaying for a home that is worth less than they expected.
- Title contingency: This clause allows the buyer to cancel the contract if there are unresolved issues affecting the property title, like liens or disputes over ownership. It protects the buyer from buying a home with a defective title or other legal issues.
- Inspection contingency: This clause allows the buyer to cancel the contract or request repairs if the home inspection reveals major defects or issues with the property. It protects the buyer from buying a home that has hidden problems or requires costly repairs.
- Sale contingency: This clause allows buyers to make their offer dependent on the successful sale of their current property. It protects the buyer from being stuck with two mortgages or having to pay rent and mortgage at the same time.
You can navigate the complex process of purchasing a home with greater confidence and protection by having these contingency clauses in your home purchase contract. However, seeking legal guidance is essential to help ensure that the contingency clauses are properly included and worded to protect your interests.