The housing market has been pretty wild for the last few years and homebuyers have had to bear the brunt. Home prices are up and many would-be sellers are saving on the cost to refinance mortgage loans and staying where they are. This adds to a lack of available real estate.
Competition is another obstacle. If you’re ready to purchase a new home, you need to act fast and make sure your offer is more attractive than other buyers.
This is why many people today opt to waive contingencies as a way of sweetening their offer. Doing so often moves buyers to the front of the line and allows them to get into the home of their dreams before someone else does. However, it can be a risky move.
Another option is an Upfront Approval Guarantee, and it might be the key to your home-buying success. Keep reading for a better understanding of this powerful mortgage product and why waiving contingencies can add fire to your offer.
What is a Contingency and Why Are People Waving Them?
The idea of a contingency isn’t exclusive to home buying. It refers to a set of conditions or requirements that must be fulfilled before a contract is put into place.
In the housing market, contingencies are conditions within the purchase agreement that help protect the buyer and seller. If one party fails to meet a condition, the other party can back out of the deal without incurring financial penalties. Two of the most common are the home inspection and appraisal contingencies. Let’s take a closer look at each.
Home Inspection Contingency
Standard in many real estate contracts, a home inspection contingency is something most buyers require. It allows them to have the home inspected within a certain timeframe. If a certified inspector finds issues, the buyer can negotiate with the seller for a lower price, ask the seller to repair problems, or back out of the deal altogether.
Appraisal Contingency
Appraisals are important in many home buying and ownership situations. They’re very common when purchasing a new home and are also part of the cost to refinance mortgage loans.
Buyers use appraisal contingencies to ensure the home’s value is at least that of the asking price. If a professional appraiser finds that the home is worth less than what it’s listed for, the buyer can negotiate for an appropriate price or back out.
The Benefit of Waiving Contingencies
Because buying a house is so difficult due to high competition, many buyers opt to waive contingencies. Why? Because with fewer conditions in place, their offer is more attractive and lets the seller know they’re committed to the deal.
Waiving contingencies also speeds up the sales process. Without the need for an appraisal or inspection, you avoid delays and cut down on the risk of the sale falling through.
Some sellers today won’t consider working with you unless you waive contingencies. Doing so upfront will give you an advantage over other buyers and could be the best way to quickly secure the home you want before it’s snatched up by someone else.
Finally, waiving contingencies means you no longer have to spend money on the inspection and appraisal. Like closing fees and the cost to refinance mortgage loans down the road, these are home-buying expenses that can eat into your budget.
Know the Risks
While waiving contingencies can do great things for your offer, there are some downsides. It’s important to consider them closely before moving forward and speak to an experienced mortgage lender if you’re unsure how to proceed.
If you waive the inspection contingency, you won’t know if there are issues with the home before you buy. Because you’re purchasing the house “as is,” you’re making yourself vulnerable to financial setbacks due to necessary post-purchase repairs. However, if you’re confident in the condition of the home or don’t mind a fixer-upper, waiving the inspection contingency is an option.
When you waive the appraisal contingency, you risk paying too much for the home. This can happen if the value of the home ends up being much less than the sales price.
Understanding Financing Contingency
Another very important clause in a mortgage contract is the financing contingency. This protects the buyer by allowing them to back out of the deal if they can’t secure the financing they need to purchase the home.
A financing contingency specifies a deadline for the buyer to obtain a mortgage loan. If they decide to back out before this date, they can reclaim their earnest money. A buyer can also request an extension if they need more time. However, once the deadline has passed, they’re obligated to the sale.
When a buyer makes an offer on a home, they typically get pre-approved by their mortgage lender for a certain amount. The seller isn’t going to accept an offer unless the buyer gets financing and the contingency stipulates the deal won’t go through until this happens.
However, it’s only after the offer is accepted that the lender verifies the buyer’s income, credit score, assets, debt-to-income ratio, and other loan application documents. Unfortunately, many purchase offers fall through at this stage.
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