As you embark on the home buying journey, you’re making a significant commitment amid numerous uncertainties. Introducing contingency clauses into the contract provides buyers with a sense of security against these uncertainties. These clauses outline specific conditions that must be met before the sale can be finalized.

Mortgage Contingencies: Among the most common contingencies is the mortgage contingency, offering additional assurance to buyers. This clause stipulates that the buyer must secure a particular type of mortgage at or below a specified interest rate for a set portion of the purchase price (typically 80%) by a specified date before the closing. Failure to obtain the loan as per the contingency terms allows the buyer to withdraw from the contract, with earnest money refunded.

Seller Protection: Contingencies not only benefit buyers but also safeguard sellers. If the buyer fails to secure a loan but neglects to inform the seller by the agreed-upon date, they remain obligated to purchase the property, with or without financing. Depending on the contingency, the seller may assist in finding a mortgage for the buyer. To enhance seller protection, setting an earlier deadline or negotiating forfeiture of a significant portion of the earnest money if the buyer fails to secure a loan by the deadline can be considered.

Appraisal Contingency: Working hand in hand with mortgage contingencies, appraisal contingencies serve two purposes: (1) Allowing the buyer to withdraw from the sale if they cannot obtain an appraisal covering the asking price; (2) Providing the buyer with the opportunity to negotiate a lower price if the appraisal falls short. If the seller does not agree, the buyer reserves the right to walk away from the sale.

Inspection Contingency: This clause grants the buyer a designated period (typically 3-14 days) to inspect the property. If significant issues are uncovered during the inspection, the buyer retains the option to withdraw from the transaction.

Additional Considerations: Various other contingencies exist, such as insurance or mold inspection contingencies, with common contingencies differing by state. It’s imperative to carefully review and understand all contract details, including fine print, before signing, as the contract is legally binding, and reversing your decision post-signing is not an option.