Buying a home is a costly purchase that often takes decades to pay off. Because of the significant investment that comes with this purchase, it’s critical that you take steps to protect your own interests.
One way that you can do this is by ensuring that your contract on a home contains contingency clauses that allow you to walk away from the purchase without any negative consequences if certain conditions are met.
There are various types of contingencies that can be included. Some of the more common include:
Financing contingency
Also known as a loan contingency, a financing contingency protects buyers who are relying on a mortgage to fund the purchase. If the buyer’s financing falls through, they can cancel the contract without losing their deposit.
Home inspection contingency
This contingency allows the buyer to have the property professionally inspected after the offer is accepted. If the inspection reveals significant issues, such as structural problems, outdated electrical systems, or water damage, the buyer can request repairs, negotiate the price or walk away from the deal entirely.
Title contingency
This gives the buyer the right to review the property’s title report to ensure there are no legal issues like unpaid liens, ownership disputes, or easements that could affect ownership. If problems arise that can’t be resolved before closing, the buyer can cancel the sale.
Appraisal contingency
When a home is being financed through a mortgage, lenders require an appraisal to confirm the property’s value. If the home appraises for less than the agreed-upon purchase price, the appraisal contingency gives the buyer the option to renegotiate, make up the difference in cash or cancel the deal.
It may be beneficial to work with someone familiar with these options to ensure you’re protecting your interests. That individual may be able to help you think of things you might have otherwise missed.
