There are many steps to purchasing a new home. After the initial offer is made, buyers and sellers often negotiate before they come to an agreement. Buyers then deposit earnest money to show they are serious about the purchase, and both parties begin the closing process.

However, a lot of things can go wrong between signing the contract and closing on a house. To protect buyers, several types of contract contingencies may be included in the contract. These allow the buyer to legally back out of the sale if necessary.

Many home contract contingencies are accepted by sellers, but some may weaken offers on a home. Here are four common types of home contract contingencies and how to tell which ones may be right for you.

1. Financing Contingency

Financing contingencies are sometimes also known as mortgage contingencies. They protect the buyer from having to complete a sale they can’t afford. Financing contingencies are an important part of your contract, and they’re commonly accepted by sellers.

Most buyers can’t afford to pay cash for a home. To complete their purchase, they must be approved by a lender who agrees to lend them the money. Lenders research buyers’ financial history to ensure they will pay the money back on time.

If lenders aren’t satisfied with a buyer’s financial history, they may refuse to give them a loan. Unfortunately, the buyer may have already signed a contract with a seller at this point. A financing contingency protects buyers from having to go through with the sale if financing for the home falls through.

Although getting pre-approved for a loan can make the process smoother, it’s not a guarantee of a loan. As a buyer, you should in your contract even if you’ve been pre-approved.

2. Appraisal Contingency

Like financing contingencies, appraisal contingencies protect buyers from legally agreeing to buy a home before they have the financial resources to pay for it. Before they lend buyers money, lenders will complete an appraisal on the home they’re borrowing money for.

If they find the home is worth less than it’s being sold for, the lender may not give the buyer enough money for the full purchase cost. For example, a lender may appraise a house that’s being sold for $170,000 as only worth $150,000 on the current market. Based on their research, they’ll only lend the buyer $150,000.

At this point, the buyer and seller have several options. They can renegotiate the price to a lower amount, or the buyer can look for additional financing to cover the difference. However, if their home contract has an appraisal contingency, the buyer can also back out of the sale without any legal repercussions.

3. Inspection Contingency

Before a home sale goes through, many buyers like to hire an inspector to check that there are no major issues with the property. Inspection contingencies are clauses in a home contract that protect the buyer from continuing with a sale if major issues are found.

Unless it’s new construction, every home has problems that need to be fixed. However, these problems can range from broken appliances and squeaky doors to mold and foundation issues. While minor issues can be fixed easily, some major issues could be unsafe and cost new buyers a lot of money to fix.

Inspection contingencies cover any and may change the buyer’s mind about completing the sale. After an inspection occurs, buyers and sellers with an inspection contingency in their contract can renegotiate. Buyers can also choose to walk away from the sale if the damage is too much for them.

After a home inspection, sellers are required to tell the next buyer who makes an offer what the inspector found. This gives them the incentive to compromise and finalize the sale with the original buyer if there’s a major issue.

4. Home Sale Contingency

Often, buyers are trying to sell their own homes at the same time they’re searching for a new place to live. Ideally, their first home sells around the same time as a new purchase goes through. However, this doesn’t always happen.

To protect themselves from having to pay for two homes at once, some buyers add a home sale contingency clause to their offer. This means the sale of a new home won’t go through until after their first home sells.

Home sale contingencies aren’t great for sellers because they must take their house off the market without knowing if the sale will go through. In today’s market, sellers generally will pass up an offer with a home sale contingency and wait for an offer that’s better for them.

In some cases, sellers will allow a home sale contingency and to protect themselves from a drawn-out sale process. This clause enables them to keep marketing their home, and they’re able to give the first buyer an ultimatum if they receive a second offer that’s better for them.

Everything You Need to Know About Contingencies

Contingencies legally and financially protect buyers in home deals that go sour. However, not all contingencies are welcome to sellers. To help you decide which contingencies to include in your home contract, talk with your real estate agent and compromise only on what you can afford.

About the Author: Evelyn Long is the editor-in-chief of , an online resource for the real estate market. Her freelance writing has been published by the National Association of REALTORS®, Insights for Professionals and other prominent industry magazines.

The post What to Know About Contract Contingencies appeared first on Blog | »Ê¹ÚÌåÓýapp.

Buying or selling a home is an exciting journey. But with so many different things to research and decide, it may be overwhelming. Especially when you aren’t familiar with terms commonly used during real estate procedures. Our experts are here to help! Let’s go through some of the most common real estate terms and what each one means for you.

Annual Percentage Rate (APR)

This phrase is mostly used for home buyers who are calculating their loan amount. Your APR is the amount of interest charged every year on the loan.

Contingency

This is one of the most used words in a real estate contract or by a real estate agent. A contingency refers to certain events that must take place in order for the contract, between buyer and seller, to not be nullified or voided. For example, a buyer’s contingency may state that the seller must replace the water heater before sale is final. If the seller chooses not to meet this requirement, the buyer may pull out of the sale.

Down Payment

The down payment is the amount of money the home buyer pays at the time of closing, usually 10 to 20 percent of the listing price. Although there are some financial aid programs that assist hopeful homeowners in securing funding for this payment, it’s important to save as much as you can when looking to buy. The higher the down payment, the less your overall interest and monthly payment.

Equity

Equity refers to your part of actual ownership in your home. Yes, the home is under your name, but your mortgage lender has interest in the home until it is completely paid off.

Escrow

This part of the home journey is toward the end. It means a 3rd party, apart from the buyer or seller, is holding funds during the transaction period. Once the transaction has been completed, the 3rd party releases the buyer’s funds to the seller.

Pending

Home sales are considered pending if all contingencies have been met and the buyer and seller are moving toward closing.

Pre-Approval

As a home seller, it is common to require potential buyers to provide proof of pre-approval. The pre-approval process includes checking your credit, verifying given information and stating the specific loan amount you qualify for.

Under Contract

This is another real estate term that is only used when the home buying process is coming to an end. It means a seller has accepted an offer, but the transaction hasn’t closed yet.

There are plenty more phrases or definitions you may come across while doing your research, but with this list, you will be way ahead of the game and ready to buy or sell in no time. Of course, you can always call your local real estate brokerage and ask for some help as well. To see what offices are located in your area, visit

The post Common Real Estate Terms and What They Mean appeared first on Blog | »Ê¹ÚÌåÓýapp.