One of the largest steps in a home purchase is the sales contract. Signing this document legally binds you to the purchase. If you don’t read the fine print, you might agree to things you don’t like. Here we discuss what you should do before you sign a new purchase contract.
Know Your Contingencies
Buying a home means many different things must come together. For example, you must secure financing. The appraisal also must come back representing the purchase price. These are just a couple of examples. Because there are so many factors in the home purchase process, you need contingencies. These cover you in the event you can’t buy the home any longer. Here are the most common contingencies:
- Financing – This gives you time to secure financing. This means more than a pre-approval. You want an approval without any conditions. It’s best if you can get all aspects of the loan processing completed before this date.
- Inspection – Asking for a specific amount of time to have the inspection completed protects your interests as well. This way you can review the report and determine if the home is acceptable for you. If there are major issues, you can choose to walk away from the purchase.
- Housing – If you have a home you must sell, you may want a housing contingency. This buys you time to sell your home. If you don’t sell it within that timeframe, you can back out of the purchase.
Negotiate All Factors
You probably know you can negotiate the sales price of the home. However, you can negotiate other things as well. The most important factors include:
- Earnest money deposit – The seller may require a specific amount of money in an escrow account. This money sits in the account as long as you meet the agreed upon terms. If you default on the contract, though, the seller may keep the earnest money. The amount required varies by seller.
- Closing date – You and the seller must agree upon a closing date. The seller may want you to take possession sooner or later than you prefer. Negotiating this date can help both parties feel satisfied with the transaction. For example, if you have a house to sell that doesn’t have an offer yet, you may want a later closing date. If you already sold your home, though, you may prefer an earlier date.
- Possession date – Sometimes the possession date and closing date aren’t the same. If the seller doesn’t have anywhere to go as of the closing date, they may want to remain in the property. They would pay a portion of your mortgage payment in exchange for remaining in the property. You can negotiate these terms prior to signing the sales contract.
- Items in the home – Don’t automatically assume you’ll get to keep everything in the home. Appliances, furniture, and window treatments are a few good examples. Talk to the seller about what will remain. Again, negotiate the terms with them. If you want the appliances, you may have to increase the purchase price slightly. Anything not specifically mentioned in the contract, however, doesn’t have to stay.
Questions to Ask About Home Purchase Contract
The following items may not be negotiated, but you should still know their answers:
- When is the walk-through date?
- What date will the seller will cover the utility payments through?
- What happens if a contingency is not met?
Discuss Your Financing with the Seller
It might not seem like the seller’s business, but they should know the type of financing you’ll use. If you wait until you send the contract over, you may lose the bid. For example, some sellers don’t like VA or FHA financing. They think they are too risky or take too much time. Neither of these things are usually true, but sellers have preconceived notions. Letting the seller know the type of financing ahead of time can save you time and heartache.
Find an Attorney
Perhaps one of the most important things you can do before you sign a purchase contract is find an attorney. You don’t want just any attorney, though. A real estate attorney is crucial. They know the ins and outs of the purchase contract. They also know your rights and can protect you during the process.
Before you sign a contract, you should have your attorney review it. He can help you negotiate the terms and make changes that aren’t fair to you. Of course, the seller must agree to the changes; he will probably consult with his attorney as well.
Whether you work on your own or with a realtor, you must know what the home purchase contract entails. Not paying close attention to the details of this document can hurt you financially. Always have at least one professional look over your contract. This helps ensure that you are doing the right thing. Buying a house is one of the largest investments of your life; don’t make the mistake of taking the contract lightly!