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MORTGAGE CONTINGENCIES

A mortgage contingency – a condition or set of circumstances upon which the purchase of a house will depend, is generally written into the offer to purchase. If the contingency or contingencies cannot be met, the sale can be negated or cancelled.

Contingencies regularly found in contract offers are as follows:

Financing – A buyer will add wording to his offer to purchase that the sale will be contingent upon his ability to obtain a mortgage at a certain interest rate. Should he be unable to procure this financing within a stated time period, his earnest money deposit will be refunded and the offer to purchase will be voided.

Professional Home Inspection – Most contracts to purchase will contain a clause allowing for a professional inspection by a licensed real estate inspector. Any serious problems found by that inspector would be cause for either negating the contract or renegotiating the price of the property. It is also possible that the seller can agree to repair any problem items found in the course of the inspection to the buyer’s (and lender’s) satisfaction before the time of closing. Should the seller be unable to make those repairs for one reason or another, the lender may insist that some of the seller’s proceeds from the closing be held in escrow until the repairs are made.

Closing/Occupancy – Buyers may stipulate that they want possession of the property by a certain date because they have their own property to vacate. They may be dealing with a landlord and will need to advise him of a date when their premises will be available. Or they may be selling a home and have to vacate by a certain date. Sometimes a buyer will request a closing at the end of a month thinking that he will save money on prepaid interest. While he may save on the prepaid interest, his first mortgage payment will be due that much sooner.

Appraisal Value – A common contingency in a contract to purchase is that the property must be valued, by the lender’s appraiser, at a price at least equal to the amount of the loan being granted to the buyer. If the property does not appraise at an amount equal to the loan or higher, the buyer will have to come up with more of a down-payment to cover the difference or he and the seller can re-negotiate the contract. If no agreement can be reached between the buyer and seller, the contract may be cancelled.

Wells and Septic Systems – If the home being sold makes use of a private well or septic system rather than being tied into a municipal water/sewer system, a buyer has the right to have these systems checked by qualified engineers or testing companies. Buyers should be aware that because the systems check out at the time of purchase, there is no guaranty of future serviceability of the systems.

Personal Property – Should a buyer arrive at an agreement with a seller to purchase items of personal property in the home such as light fixtures, window treatments, ceiling fans, washer and dryers, a separate agreement should be written up for these items. Lenders do not include such items in their loans. If your earnest money deposit includes the purchase of such items, they should be listed on a bill of sale and paid for separately and this payment should not be considered as part of the down-payment.

Lead-Based Paint, Radon and Other Environmental Hazards – Homes built in the 1950’s and 1960’s often used asbestos as insulation. Homes built prior to 1978 used lead-based paint for both interior and exterior painting. Radon gas, a natural by-product of the breakdown of underground elements, may be highly concentrated in some areas. Homes or businesses with nearby underground fuel storage tanks can contaminate surrounding soil. Qualified home inspectors will be able to evaluate hazards within the home and environmental engineers can, for a fee, help a buyer determine if there is a potential problem with the property or surrounding area. Making a purchase contingent upon inspections for these potential problems is not unusual.

Clear Title – Another requirement of the contract will be that the buyer is purchasing the property with the expectation of clear title meaning free of all judgments and liens. Any judgments granted or liens assessed against the seller will have to be satisfied before or at the time of closing.

Survey – Buyers should also have a survey performed by a licensed surveyor showing the legal description of the property and improvements (building) and any easements or encroachments by neighboring structures.

Energy Efficiency – If the seller has advertised his home as energy efficient, a contingency regarding the energy efficiency rating of the property may be included in the contract to purchase.