Most real estate purchases cost a considerable amount of money. That applies whether you are buying your first apartment or a further addition to the portfolio of properties you already own.
One thing you cannot afford to be doing is committing to a contract to buy that you cannot afford to meet. That is where funding contingencies can come in. You can insert these in the contract before closing on a property, allowing you to reserve it but back out if your planned funding does not pan out as hoped.
1. If a lender withdraws their mortgage offer
It is wise to seek a preliminary mortgage offer before moving to buy real estate. However, the terms will not be set in stone until you sign the final mortgage contract. Lenders may get cold feet or only be willing to offer a less attractive deal due to a change in the financial markets or a change in your circumstances (which you are obligated to tell them about).
2. Your buyer pulls out
One of the tricky things about buying residential real estate is that you often rely on a whole chain of others buying and selling for the sale to go through. If someone further down the line, such as the person buying your house or the one buying your buyer’s house, pulls out, it could prevent you from proceeding with the purchase.
3. Your financial circumstances change
Maybe you lose your job days after finding the house of your dreams. Without that steady source of income, the purchase may no longer be feasible. Or maybe an investor withdraws their offer, preventing you from expanding your property portfolio.
With appropriate legal guidance, you can draw up and insert clauses with wording tailored to your needs. While you hopefully won’t need to use them, it is crucial to have them in the contract just in case.
