If you're in the process of buying a single-family home, you'll need to give the seller some earnest money to secure your contract and move forward with the sale. However, your contract should have some provisions that allow you to walk away from the home and get your earnest money back. Here are three ways that this can happen.
One of the main contingencies you want in your contract is based on the home inspection. The home inspection will be your primary opportunity to discover things that are wrong with the home, which you may not be able to see at first glance when walking through the home for a showing. While a home inspection can show basic things that are wrong with the home, such as electrical outlets that don't work or plumbing that needs repair, it can also reveal major problems that are enough to walk away from the purchase.
For example, if your home inspector identifies foundation damage, this may be enough for you to walk away from the home because you do not want to bother with making repairs. If the home's HVAC system is not working or is on its last legs, you may not be prepared to immediately perform a huge upgrade right after moving in.
Nobody wants to overpay for a home, and that is where the home appraisal comes into play. This is when a third party looks at the home and determines its value independently. They'll figure out how much the home is actually worth based on its layout, construction materials, appliances, and the area that you live. This number is then reported to you and your mortgage lender, and the appraisal can even impact your ability to get a mortgage.
A mortgage can fall through for a variety of reasons, and this is why you want a contingency to walk away from the purchase. While a low appraisal can be a reason to deny a mortgage, the lender can also do so based on problems found in the home inspection. There may be underwriters that decide you cannot get a loan based on your credit score, stable employment, and things of that nature. By having the provision to walk away from the purchase due to a mortgage that was not secured, you won't be out all that earnest money you paid upfront.
Reach out to your real estate agent to find out more about provisions in the contract that allow you to keep your earnest money. For more information about buying single-family homes, contact a local real estate office.