As real estate agents, we’ve worked with some pretty cautious buyers over the years. If you’re like most people, a home is one of the biggest purchases you’ll ever make. You’re bound to feel at least a little bit nervous about the possibility that your deal will go very wrong. If it does, the last thing you want is to be on the hook financially. That’s where home-buying contingencies come in.
Contingencies are conditions that need to be met—or the transaction you’re involved in will never close. By adding the right ones to your purchase contract, you can make sure that you’re protected if worst comes to worst. Here are the four home-buying contingencies you should know about…
1) Financing contingency
Worried that your mortgage financing could fall through after you’ve agreed to purchase a home? It happens. The good news is, adding a financing contingency can help you avoid serious financial consequences if it does. Let’s say you receive mortgage pre-approval and enter into an agreement to buy a property. You still have to go through the underwriting process before you receive your loan—and it’s entirely possible that you’ll hit a snag and be denied along the way. If you have a financing contingency, you can use it to get out of your purchase.
2) Appraisal contingency
If you need a mortgage to buy a home, you may want to include an appraisal contingency in your contract. Here’s how it works. Before you can receive a loan, your lender will have the home that you’re planning to buy appraised to determine its fair market value. Put simply, you can’t be approved for a mortgage that equals more than the appraisal amount. So what happens if you and the seller have already agreed to a purchase price that’s above fair market value? Without an appraisal contingency, you may be out of luck. If you have one—you guessed it, you won’t have to go through with the purchase.
3) Inspection contingency
Usually, having a qualified inspector give a house or condo the once-over is a wise decision. For added protection, you might also want to make the completion of your home purchase dependent on a successful inspection. If a serious issue turns up during the process, you can back out of the deal—or negotiate with the seller to have them perform the necessary repairs. Buyers who include an inspection contingency will want to use a Due Diligence Addendum. Doing so will give you an agreed-upon number of days to find the answers to any relevant questions before you move forward confidently with their purchase. A knowledgeable real estate agent can explain the specifics.
4) Home sale contingency
A home sale contingency allows buyers to get out of a home purchase if they aren’t able to sell the house or condo they’re in now. It’s worth noting that this contingency isn’t used often anymore, especially in hot markets. As a result, many sellers refuse to accept it—and including one in your offer could make it significantly less appealing. The good news? Well-maintained properties on Hilton Head tend to attract plenty of buyers. This means there’s a good chance you’ll be able to sell your home after you sign a purchase contract. Of course, things don’t always turn out that way, so it’s best to talk to your agent before taking this step.
The bottom line
Home-buying contingencies offer a certain level of protection for buyers. That said, if you’re making an offer on an in-demand property, including too many of them (or any all) could mean losing out to a buyer who doesn’t. A knowledgeable real estate professional can help by looking closely at your specific circumstances and helping to determine which action to take.
Have questions about buying a home on Hilton Head? Get in touch—we’ll walk you through the process and give you an idea of what’s available on the market!