Should I consider Mortgage Contingency
Should you consider a mortgage contingency?
A mortgage contingency might be good to include in your purchase contract because it protects the parties involved from various issues that may come up during the homebuying transaction. It primarily exists to protect the buyer, but it can also be used to protect the seller from unqualified buyers.
The contingency is written into your offer and provides a release from the contract if, for example, the buyer can’t get the appropriate financing.
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Buying and selling together
A home sale contingency is also helpful if you’re trying to buy and sell a house at the same time. You can make an offer on the home you want to buy, but put a contingency that the transaction depends on the sale of your current home. However, the other seller can still consider marketing their home to other buyers and could accept an offer that doesn't contain a contingency.
Timing is critical when buying a new home while selling your old one:
- If the old home sells before the new home closes, buyers could temporarily stay with relatives, find a short-term rental or negotiate a rent-back period with the buyers.
- If the new and old homes are scheduled to close on the same day, it's important to tell your lender ahead of time.
- You must work with your lender and real estate agent to determine dates and deadlines so one transaction doesn't hold up the other.
Types of home sale contingency
- Sale and Settlement Contingency: A sale and settlement contingency is a stipulation for a buyer who has yet to receive or accept an offer on their current home. The contingency states that the sale of the new home is contingent upon the buyer selling and settling their old home. This allows the seller to continue to entertain other offers and give the buyer notification if another offer is accepted. Any earnest money will be returned to the buyer.
- Settlement Contingency: For this contingency the buyer has already accepted an offer on their old home and is currently in the process of closing. This contingency gives the buyer a set amount of time to close and prevents the seller from fielding other offers. If the buyer closes in the specified time the contract remains. If they do not, the contingency is null.
Most contracts have standard contingencies written into the agreement. Your real estate agent can help determine if a contingency is needed for your circumstance.