Contract contingencies offer protection for people buying a home in case something goes wrong. There are three standard contract contingencies homebuyers should know about to make sure they can get out of a home agreement if they need to. Under certain circumstances, contract contingencies can keep homebuyers from facing penalties if they decide to walk away. Mortgage, home inspection and attorney approval contingencies are the most common, but homebuyers could consider others depending on their situation.
1. Mortgage contingencies allow a homebuyer to back out of a contract if he or she can’t find a lender to offer a mortgage at an agreed upon rate by a certain date. It’s meant to protect homebuyers in case they can’t find financing. Like all contract contingencies, there are several different kinds. For example, some mortgage contingencies only allow homebuyers to cancel a contract if their application for financing is rejected. Speaking with a real estate attorney can help homebuyers decide which kind of mortgage contingency is right for them.
2. Home inspection contingencies give a homebuyer the right to have an inspector examine the property before he or she closes on the purchase. An inspection contingency should allow a homebuyer to inspect the property and approve the inspector’s written report. If an inspection reveals that a home will need lots of expensive repairs, the homebuyer could be stuck unless the contract offers a way out.
3. Attorney approval contingencies allow a homebuyer’s attorney the right to make changes or reject a contract. If a homebuyer is unable to talk to his or her attorney before making an offer on a home, the specific wording of the attorney approval rider is even more important. It may give an attorney the right to review and approve a contract, or it may only allow the attorney to make modifications.
Homebuyers can attach almost anything they want to an offer. However, they should be careful not to scare a seller by asking for too many contract contingencies or ones that are too strange.