New American Funding Blog

What contingencies you should consider when buying a home

By Courtney Lynch   |  April 12, 2016

Include some helpful contingencies in your contract to make sure you aren't stuck with a house you'll regret buying.When you finally decide on the perfect house, you probably don't want to think about going back into home-shopping mode. However, there could be certain circumstances that arise soon after closing that will make you wish you could get out of the sale. Unfortunately, home sales tend to be final, and backing out after a certain point isn't an option.

You can protect yourself from this situation by including some contingencies in the home purchase contract. A contingency is a clause in the contract that outlines specific circumstances in which your agreement is no longer valid, giving you a way out of the purchase.

Home inspection

According to, there are several contingencies that are pretty normal in the industry [1]. For instance, the home inspection clause. This will state that you are satisfied with the home right now, but want it to be checked out by a professional before you commit. This can help you avoid expensive discoveries later on, like structural damage or extensive mold. Some of what is unearthed during the inspection may even be able to be remedied by the homeowner, such as a leaky faucet, the Home Buying Institute explained [2].


Another common contingency states the homebuyer will purchase the home if he or she is able to find sufficient financing, like a mortgage. This will protect you if your application for a loan is unexpectedly declined. Nolo explained that sellers prefer buyers who are able to prove they are sufficiently qualified for a loan, or are able to pay for the house entirely upfront [3]. This is because many real estate agents have seen home deals turn sour when a mortgage applicant is denied a loan after he or she signs the housing contract.


An important part of purchasing property is getting homeowners insurance. However, oftentimes there are situations that can't be covered by insurance, like flooding or earthquakes. Zillow explained these extra insurance products can be difficult to find and obtain, but they may also be required in some regions [4]. If you don't have the proper insurance, you may not qualify for a loan. Or, you may have to buy one the lender takes out for you, which is usually more expensive. By including an insurance contingency, you can make sure that you will be able to obtain the right, affordable insurance before committing to the sale.

Buying or selling

If this is not your first home purchase, you may be trying to sell a home at the same time that you're buying a new one. However, if you fail to sell your home, you may be stuck with two properties. Adding a clause that states that you are only obligated to go through with the purchase under the condition that you are able to sell your home. However, Zillow pointed out that this clause makes your offer sound weaker and may convince the seller you are not the right buyer. If you need the funds from your current home to pay for this new one, though, it is a good idea to include, so you don't lose your deposit on the new home.

On the other hand, the seller of the new home could be in a similar situation; they may add their own contingency stating the sale will only be good should they successfully buy a new home. As the buyer, you could accept or reject this. For instance, if your move-in is time sensitive, you might be less inclined to allow this. However, if you are willing to allow the seller's buying clause, they might be lenient toward your selling clause.

Home owners association

Some home purchases require that you follow the guidelines set by a homeowner's association. The association might have fees that are more expensive than you're willing to pay, and it might have rules about what home improvement projects you can do. This could include anything from paint colors to landscaping plans. Make sure you know all about the homeowners association before you sign a contract, and have your purchase dependent on whether you're willing to join the association.

Be sure to include the contingencies in your agreement that you need to protect yourself from a purchase you will regret later. Housing contracts don't always automatically come with them, so discuss these with your real estate agent before signing on the dotted line.

[2] Home Buying Institute
[3] Nolo
[4] Zillow

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