Buying a new home can be equal parts exciting and anxiety inducing. While you’re planning how special each room is going to be, and how the decor is going to look, you still have to worry about your old house – especially if you haven’t sold it yet! Fortunately, we’ve compiled a list to make sure you have some of the legalities in order when you’re selling and buying a home:
Contingency Clause
The basic premise of a contingency clause is that a condition must be met in order for a real estate contract or deal to become binding. Essentially, this means that you will buy the new home contin-gent on your old home selling. Whether or not the seller is willing to agree to a contingency clause depends on a number of things. A few of the factors that come into play are the following; how long the house has been on the market, your offering price compared to their asking price, the sell-er’s motivation, as well as the terms of offer. Though these are common factors, they certainly do not make up all of them, it’s completely dependent on the unique situation. There are many types of contingency clauses, so make sure you get to know a few of the most common types.
Types of Clauses
House Sale Contingency
In most cases it’s easier to sell before buying another property because timing and financing don’t always work out in your favour. Therefore, a house sale contingency gives you a specified amount of time to sell and complete their existing home sale in order to finance your new one. This type of contingency protects buyers because if an existing home doesn’t’t sell for the asking price, the buyer can back out.
Financing Contingency
A financing contingency (also known as a mortgage contingency) gives the buyer time to apply for and successfully obtain financing to purchase the home. This is important because it provides pro-tection for the buyer, who can back out of the contract at any time and reclaim their money in the event that they’re unable to secure financing. A financial contingency states a particular number of days that the buyer has to obtain financing, and the buyer has until then to terminate the contract. If this is not done so in a timely manner, the buyer automatically waives the contingency and is obligated to purchase the home.
Kick-Out Clause
A kick-out clause is the contingency added by sellers to provide a sort of protection against a house sale contingency. While the seller agrees to a house sale contingency, they can also add a ‘kick-out clause’, which states that the seller can continue to keep the property on the market. If another qualified and financed buyer comes along, the seller will give the current buyer a specific amount of time to remove the house sale contingency and keep the contract alive or the seller can back out altogether.
Other Options
Bridge Loans
A bridge loan is a great option if you have great credit, a solid debt-to-income ratio, along with plenty of equity. This sort of loan will last 6-12 months and bundles the payments for both houses into one interest-only payment. Although lender requirements vary slightly, you will typically only be able to finance up to 80% of the total value of both houses. On the downside, you get hit with two closing costs: one for the bridge loan and another on the mortgage on the new house.
Are you ready to buy a new home? Trafalgar Ridge is waiting! With functional living spaces and exceptional style, you’re sure to fall in love with our new town homes in the heart of Oakville. Register today!
