If you’re buying a home for sale in Lakewood, you’ll eventually sign a purchase contract with the seller. Your contract will include contingencies – but what are they, and what will they mean for you?
What Are Contingencies in a Real Estate Contract?
Contingencies in a real estate contract are there to define conditions that must be met before the transaction can close. When a buyer and seller both sign the contract, they become binding.
Common Contingencies in Home Purchase Contracts
Some of the most common contingencies relate to:
- The home appraisal
- The home inspection
The Financing Contingency
If you’re borrowing from a lender – most people do – in order to buy a home, you don’t want to be stuck buying the home if you can’t secure financing.
The financing contingency protects you from that. In most cases, this contingency gives you a certain amount of time to secure financing. If you don’t meet the deadline, you can walk away from the deal without being on the hook to make the purchase anyway.
The Home Appraisal Contingency
Your lender will require an appraisal before it gives you the money to buy a home. That’s because the lender doesn’t want to lend you more than the home’s fair market value – otherwise, it’s assuming the risk that you won’t be able to sell it if you want to, and you could end up defaulting on your payments.
The lender would lose money if it did that, and lenders aren’t in the business of losing money.
If the appraisal comes in below what the seller wants you to pay for it, the lender will decline to finance you. (If that happens, you could negotiate with the seller for a lower price, or you could come up with more money of your own to buy so the lender will let you borrow enough money to cover fair market value.)
Should the seller decide not to negotiate with you, you can back out of the deal thanks to this contingency.
The Home Inspection Contingency
The home inspection contingency allows you to back out of a real estate transaction if your home inspector uncovers an issue that you’re not willing to deal with. Remember, though, you can use things that pop up in the inspector’s report as negotiating points with the seller. Your Lakewood Realtor® can give you the right guidance if this happens.
Are You Buying a Home in Lakewood or Long Beach?
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