Do You Need A Mortgage Contingency?
Contingencies are a good idea to include in any home purchase contract because they protect the parties involved from various issues that can arise during the transaction period. They provide for a release from the contract should the conditions agreed upon not be met. Your real estate agent can help determine what kinds of contingencies are appropriate for your circumstance.
• Mortgage contingencies primarily exist to protect the buyer, but can also be used to protect sellers from unqualified buyers.
• Most contracts have standard contingencies built into the agreement.
• Financing, Appraisal and Inspection contingencies help ensure that buyers are getting the appropriate loan amount, property value and home condition for them to move forward with the purchase agreement.
Videos are for informational purposes only and represent the opinions of the speakers. Chase does not warrant the completeness, timeliness or accuracy of the content.
James: Most contracts you’re gonna find are gonna have built in a lot of standard contingencies.
Michael: A mortgage contingency is primarily an effort to protect a borrower. Making certain that they’ll get the specific loan that they’re most qualified for. And if not they don’t have to proceed with the contract.
Jamie: 2003 I bought a condo. It’s a little bit smaller. It’s really cool. Nice trendy neighborhood but it was just a little bit too small for the two of us to live in. Put an offer on a house.
Asheila: Typically in a purchase transaction a buyer is going to put down an earnest money deposit to let the seller know that they’re serious about purchasing that home.
Jamie: And you you know you say you’re prequalified great. But if you’re not prequalified the seller will probably put a contingency clause in the contract that says if you’re not qualified for a mortgage by this date then we’re gonna take another offer.
Asheila: The contingency is there to protect the buyer’s earnest money deposit and it prevents them from being legally bound to still purchase that home in the event they’re not approved for a loan.
Jamie: Which is kinda what happened to me because I put the offer in, I was not prequalified, because of my debt to income ratio. If you have a condo with a mortgage and you’re trying to buy a house with a mortgage you’re debt to income ratio is pretty high.
James: There may be instances where you want to put in an appraisal contingency, to make sure the property appraises, and if it doesn’t then to have some remedies available to the buyer.
Duane: When you’re buying a home, there will be in the contract what’s called an inspection contingency. You want to make sure that’s in there and higher an inspector within the contingency period. Which typically is about seven days.
Michael: Often times, we’re in a very competitive market for example right now, and you have contingencies the contingency of the sale of a home. When you go to write another offer and you do have to put that contingency in place you can share that not only do we have this as a contingency in our purchase contract, but in addition to that we have a buyer that’s ready, willing and able to purchase.
Jamie: My mortgage broker is like you know what’s going on with the condo? Are you renting it? Selling it? I’m like no I’m renting it. Once I got that taken care of I was qualified and we were good to go.