Buying? Must-Have Contingencies to Include in Your Real Estate Contract

A home purchase is not like buying a dishwasher – you can’t just “return” it if things don’t pan out the way you planned a few weeks down the road. Once you’ve sealed the deal, you’re stuck. And while this is usually a good thing when you find the right home, it’s important to place a few contingencies in the contract before you agree to take over ownership and commit yourself to a mortgage.

What are contingencies, anyway? Simply put, they’re conditions that need to be met before the closing can occur. They offer a way out in case things don’t proceed throughout the buying process as planned, and essentially act as protection for you. For this reason, it’s imperative that certain contingencies are included in a home purchase. Here are some must-haves you shouldn’t ignore.



Considering the magnitude of a home purchase, odds are you’ll need to take out a mortgage to pay for it. But getting approved for a mortgage involves a lot more than just filling out an application and assuming you’ll get approved and funded within a couple of days.

The financing process can be an in-depth and sometimes complex one. Your lender will need to closely analyze your income, debt, credit history, and any other financial scenario that could affect your ability to afford a home within a certain price range.

What if you agree to buy a house, sign a contract, then discover you can’t get a mortgage to pay for it? Without a financing contingency, you could lose your deposit if you aren’t able to secure a mortgage. Having this contingency in place can give you a way out of a purchase agreement if you aren’t able to make good on your promise to get financing.

Before you even begin your house hunt, you should ideally get yourself a pre-approval letter. This allows your lender to conduct a quick analysis of your finances to see what you can afford. While this isn’t a promise of mortgage approval, it’s a good step in the right direction.

Home Inspection

No matter how many times you have a scheduled viewing of the home before you agree to buy it, there may be issues with the property that you and your agent may not have noticed without a more thorough and detailed investigation. What if there are problems with the electrical wiring, or the plumbing pipes? What if there’s mold lurking in the drywall, or significant cracks in the foundation that compromise the integrity of the structure?

That’s where a home inspection can be a real life-saver. Your contract gives you a few days to have a home inspection scheduled, whereby a professional inspector will take a few hours to closely and thoroughly analyze various components of the home to see if there are any serious issues that haven’t been noticed before the contract was drafted. A home inspection contingency will ideally specify that the inspection report must be satisfactory to you. If it isn’t, you’ve got options.

Typically, you and the seller can agree on how much the seller will pay to have the problems fixed. You might also agree to have the seller make the repairs before the house closes and you move in. However, sellers can also refuse both options, at which time you can either accept the deal anyway, or back out of it completely and move on.



You want to make sure that you’ll be getting free and clear title of the property when you agree to buy it. But if the sellers don’t actually fully own the property 100%, they legally don’t have the right to the property on their own. Many times the sellers aren’t even aware of their lack of complete and clear ownership the property before listing it for sale.

And in more rare cases, scammers may try to sell properties to unsuspecting buyers knowing that free and clear title can’t be transferred. There may also be issues with title, such as tax liens, contested wills, divorce issues, and other scenarios that may complicate the property’s title.

Whatever the case may be, a title contingency offers you the opportunity to investigate whether or not any issues on title exist. If any are discovered, they can either be cleared by the seller before you take possession, or you can simply walk away from the house altogether.

Property Insurance

Lenders will likely require that property insurance is purchased on the home before you are approved for a mortgage. But what if there are issues that stand in the way of you being able to secure such insurance?

For instance, in certain parts of the country, earthquakes, hurricanes, and floods are much more common than in others. Coverage for any damage that ensues as a result of these situations is often not provided in the average homeowner’s insurance policy. If the house you’re buying is in any one of these zones, you’ll probably have to take out special insurance coverage.

Insurance companies have become increasingly hesitant to insure properties that come with a specific type of risk. Because of this, you might want to include a contingency in the purchase contract that gives you the chance to back out of the sale if you can’t secure proper home insurance prior to closing.

To avoid last-minute issues, make sure you apply for property insurance as soon as you sign the purchase contract. Get some quotes from a few insurance providers, and request that the policy is delivered to the closing agent a few days before closing.

While your real estate agent won’t let you enter a contract without including specific contingencies to protect you, it’s still a good idea to familiarize yourself with them. Using specific contingencies when buying a house is essential – they’ll protect you from getting sucked into purchasing a home that you either no longer want or simply can’t afford. But be careful of including too many contingencies, which could scare the sellers off and prompt them to reject your offer altogether.