Buying a home, especially a first home, comes with a lot of uncertainties. This complex process is nothing like walking into a store to buy new clothes. Instead, you have to find a home you’re interested in, make an offer on it, and wait for the seller to respond to the offer to start the process.
You also have to ensure you’re able to secure financing. There are a variety of steps within each phase of purchasing a home. One thing that can often get confusing is the terminology you come across. Here are three terms you should know if you’re going to purchase a home:
1. Contingency clause
A contingency clause sets an expectation for the homebuying process. Both the seller and purchaser can include a contingency clause. If the terms specified in the contingency clause aren’t followed, the real estate deal doesn’t have to move forward. Common contingencies include the sale of the buyer’s current home, passing a home inspection, or being approved for the mortgage.
2. Earnest money
The earnest money is a deposit you make when purchasing a home. It’s a way to show the seller that you aren’t wasting their time. You lose the earnest money deposit if you walk away from the purchase for any reason that’s not discussed in the contract. If you complete the purchase, the earnest money deposit is used as a credit for closing costs or the down payment. You get the money back if you walk away due to a contingency clause.
Protecting your rights is crucial when you’re purchasing a home. Working with someone who’s familiar with the process and can help you throughout it is beneficial. It’s especially important to be sure the contracts you sign are written appropriately.