In most purchase transactions there may be a slight challenge or two, but most things will go quite smoothly. However, you want to anticipate potential problems so that if something does go wrong, you can cancel the contract without penalty. These are called "contingencies", and you must be sure to include them when you offer to buy a home.
For example, some buyers often agree to purchase a home before selling their previous home. Even if the home is already sold, it could be a pending sale which has not yet closed. Therefore, you should make closing your own sale a condition of your offer. If you do not include this as a contingency, you may find yourself making two mortgage payments instead of one.
Another condition should be that the property appraises for at least what you agreed to pay for it. During the escrow period, you are likely to require certain inspections, and yet another contingency should be that it passes those inspections.
There are other common contingencies you should include in your offer. Because you most likely need a mortgage to buy the home, a condition of your offer should be that you successfully obtain suitable financing. Consequently, the seller has the right to be informed of your financing plans in order to evaluate them. That is one of the major reasons that financing details are included in your offer. Your offer should also contain information on whether you are obtaining a fixed rate or an adjustable rate mortgage. It should also state whether you are obtaining conventional financing or obtaining a VA or FHA loan.
Another reason for including financing information in your offer is to protect yourself. If interest rates suddenly rise, as they sometimes do, you may find a mortgage payment much higher than you anticipated. By putting a maximum acceptable interest rate in the offer, you are protecting yourself from such an occurrence.
At the same time, the seller will probably want to see that you have some flexibility in the financing terms you are willing to accept. If interest rates are currently at eight percent and you indicate this is the highest rate you will accept, you would be able to cancel the contract without penalty if interest rates rise past that point. |
