Buying or Selling a Home

The Purchase Contract

What is a mortgage-contingency rider?

This common provision allows the buyer a certain period of time to obtain a commitment for financing at a specified interest rate for a certain amount of money. It usually lasts for 30 to 60 days, depending on the average time needed to obtain a loan commitment.

The clause might read, for example, that the contract is contingent on the buyer obtaining approval for a 30-year mortgage for $100,000 at no more than eight percent interest within 45 days. For additional protection, the buyer might specify the type of loan he or she prefers, for example fixed or variable.

A mortgage-contingency rider provides critical protection to the buyer. For example, it allows the buyer to void the purchase contract without penalty in those cases in which the buyer is unable to obtain financing on the terms specified in the contract after making a reasonable or good faith effort to do so within the time provided. Because this type of clause favors the buyer, some real estate agents suggest that the buyer obtain "pre-qualification" from a lender, which gives the seller a degree of confidence that the buyer will not use the clause to void the contract unless some extraordinary circumstance arises.

The seller may refuse to agree to a mortgage-contingency rider. This can and does happen in a very hot seller's market-in which case, there is not much the buyer can do. But the absence of a mortgage-contingency rider might mean that the buyer will be forced to finance his or her home purchase at an unfavorable interest rate. Because of this risk, buyers should be cautious about signing a purchase contract that does not contain this clause.

>>What is an offer to purchase?
>>What might I include in my offer to purchase a home?
>>What is earnest money?
>>How is the offer negotiated?
>>How does an offer relate to the purchase contract?
>>Can oral promises constitute a contract?
>>When should we involve a lawyer?
>>What are the key provisions of the purchase contract?
>>What is an inspection rider?
>>What is an attorney-approval rider?
>>What is a mortgage-contingency rider?
>>May the seller refuse a mortgage-contingency rider or an inspection-contingency rider?
>>What happens to my earnest money deposit if we do not complete the sale?
>>Can a buyer sue a seller for backing out of the contract?
>>Are there any special considerations when you are buying a home from a builder?


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*The Purchase Contract* | Financing a Home Purchase | The Closing | The Fair Housing Act
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