A contingency clause allows you to withdraw from an agreement to buy a house, without penalty, in specific circumstances.
As withdrawing from a signed promise to buy may otherwise be expensive or even impossible, it’s crucial to include all the contingencies you might need. Here are some to consider:
1. A funding contingency
Unless you are after a second home or are a first-time buyer, you probably need to sell your current place to pay for the new one. Yet these kinds of “chain agreements” for housing sales are notorious for falling through.
Lenders can also change their initial mortgage offers before you sign the final paperwork, especially if federal interest rates rise or your employment circumstances change. Both scenarios could affect your ability to buy a new home.
2. A inspection contingency
Inspections are crucial, and the more thorough the better. Houses can have so many flaws that the average person will not spot or understand the severity of a problem without experienced guidance.
Even if the building is perfect, there may be issues with the land that make the purchase too much of a risk. A home inspector is trained to spot all these things and inform you. You can then make an informed decision on whether to proceed (and perhaps negotiate a lower price if there are issues) or withdraw your offer altogether.
3. Title contingency
Not everyone who tries to sell a house has the right to. Sometimes there are ongoing ownership disputes, be that over the property as a whole or a particular section of land such as the fence line.
Getting help to write these and other contingencies into your agreement to buy can help you protect your hard-earned cash when seeking a new home.