As mortgage rates began to rise over the past few months, its not surprising that the housing market cooled off a bit. A number of buyers contending with new mortgage rates and, of course, larger mortgage payments took a step back to analyze their budgets and their next steps.
In some cases, buyers decided to actually cancel contracts to purchase a home. In an article published by Yahoo!Finance, its reported, “About 65,000 home purchase agreements fell through in December, according to RedFin.” What may surprise many, especially coming off of a red hot sellers’ market where buyers were outbidding asking prices and waiving inspections, is that buyers do have a few options for backing out of the contract to purchase a home.
Some of the most common reasons buyers decide to back out of a house purchase are based on contingencies they included in the purchase contract such as home inspections and securing financing. Buyers have a set period of time to clear any of the stated contingencies and if they cannot be cleared up, the buyer can back out.
Many times, issues that arise in the inspection period can be resolved between the buyer and seller with repairs being made or adjusting the sale price to allow for future repairs. The home inspection period is only two weeks. Contingencies for financing protect a buyer in situations where they are not able to secure financing, even with a pre-approval from the bank. The buyer has 30 days to secure the loan.
Buyers that purchased a home without a contingency or whose contingency period has expired may lose earnest money if they decide to back out of the contract. Reporter Sigrid Forberg states in the article, “If you need to back out and have good reasons, you should put those in writing to explain things to the seller. Ask your real estate agent to help you with the messaging on your letter. If you’re still at odds with the seller even after mediation, you may need to bring in a real estate attorney to help you go over your options.”
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Photo Credit Annika Wischnewsky