This Is the One Condition I Put Into the Purchase Contract When I Made an Offer on a Home

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When I put in an offer to buy the house I’m purchasing, I made my offer contingent on securing financing. Here’s why. 

Recently, I made an offer to purchase a home that’s a bit of a fixer-upper. When I put in my offer, I included one contingency or condition that had to be fulfilled in order for the sale to go through.

Here’s what that contingency was and why I included it.

This condition is vital when purchasing a property

When you put in an offer contract, normally you’ll want to include a few different contingencies. Contingencies are things that the sale is conditioned upon. The offer is made contingent upon, or dependent upon, certain things happening.

A typical offer to buy would include:

An inspection contingency: This means the purchase would be conditioned on a satisfactory home inspection.A financing contingency: This condition means you would need to be approved for financing.

If you have to sell your current home or close on the sale first, you’d also make your offer contingent on that happening.

When I put in my offer contract, I wanted to make it really attractive to the owners — mainly because the house wasn’t even listed for sale at the time. I couldn’t find a house I liked on the market, so I approached the people who were trying to rent this one and I offered to purchase it.

Since I wanted them to say yes, I kept the contingencies to a minimum and I didn’t ask for an inspection contingency. This is a risky move in most situations, but because I’m planning on doing a lot of major work to the house and I had a contractor walk through with me twice before making an offer, I was OK with waiving this one.

I insisted the financing contingency be included though. This was non-negotiable and there’s never a reason not to include this in a contract if you have to get a mortgage to buy the house.

Here’s why a financing contingency is so important

A financing contingency was crucial for me, and is vital for most people buying a house, because there’s always a chance you won’t be able to get a loan for the home.

Now, I was pre-approved for a mortgage, and anyone looking for a house should be pre-approved as well. But pre-approval is not a guarantee that you’ll get a loan. Things could go wrong after the fact, including a low appraisal that means you can’t meet the required loan-to-value ratio or an appraiser raising health and safety concerns with the home that make the loan too risky for the lender.

While it doesn’t happen often, around 8% of loans end up being denied by underwriters. Anyone could potentially fall into this category if something unexpected happens. And, if you haven’t made your offer contingent on securing financing, you could lose your earnest money deposit if you can’t complete the sale because you can’t get a loan.

I put down a $20,000 deposit to buy my house, and I wasn’t going to take a chance of losing that money if the bank didn’t come through for me. You shouldn’t either if you’re buying a home.

The purpose of contingencies is to protect you from loss if something goes wrong. If you cannot pay outright for a home, then a financing contingency is an absolute must in all circumstances because you can’t take a chance of not getting a loan and losing any money you’ve invested in the purchase thus far. If you’re putting in an offer to buy a home now or in the future, don’t sign an offer without one.

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