You've located the perfect house and are ready to make an offer as quickly as possible. You have a pre-approval letter from a lender as well as a proof of funds letter. The real estate agent opens the sales contract and begins to fill it out. In addition to the offer price, you'll need to include a few stipulations in the sales contract called contingencies.
A contingency is a condition that stops the transaction from continuing unless and until the condition is satisfied. A mortgage contingency is the most frequent kind of contingency.
A mortgage contingency stipulates that you are not obligated to finish the transaction if you are unable to secure financing for the property. The mortgage contingency will contain the loan type (FHA, USDA, conventional mortgage, etc.), the maximum loan amount, the maximum interest rate, and any mortgage charges or fees. If the seller accepts the buyer's offer, the buyer will have a set number of days to submit a financing application.
Several more contingency clauses include the following:
Home Inspection Contingency
As part of the home inspection contingency, the buyer has the right to have the home inspected by a professional home inspector. The buyer stipulates in the sales contract that the house inspection will be completed within a specified length of time.
The appraisal contingency informs the seller that the home must appraise for at least the same amount as the offer price.
The seller must be able to transfer to the buyer a clear title free of liens and encumbrances.
Home sale contingency
If you can't sell your current home before closing on the new one, the house sale contingency permits you to get out of the contract.
Pest infestation contingency
Termites, wood-boring insects, and other pests can be a problem. Under the pest contingency, the home buyer has the right to have the property inspected for any vermin or rodent infestation.
Frequently Asked Questions about Mortgage Contingencies
Q. What does "waiver of mortgage contingency" mean?
A. If the mortgage contingency is removed, the home buyer will not be entitled to terminate the sales contract if financing is not available.
Q. What is a mortgage contingency date?
A. Dates are critical when it comes to real estate transactions.
If you are unable to fulfill the date(s) specified in the sales contract, you risk nullifying the protection provided by a contingency, including the mortgage contingency.
Q. What is a home sale contingency?
A. A home sale contingency tells the seller that you must sell (and close on) your present home before closing on the seller's home. Unfortunately, if another buyer comes along or your home does not sell quickly enough, the seller will want their own escape clause.
Q. What does "waiving the mortgage contingency" mean?
A. By waiving the mortgage contingency, you're willing to buy the house without a loan. A mortgage contingency protects you if you can't acquire a loan.