If you’ve been searching for your dream home, there’s nothing like the relief of finally being under contract.  That’s something to celebrate.  But now that you’re under contract, what should you expect? Your main task now is to work through the contingencies in the contract.

Contingencies are conditions that must be met in order for the home purchase to take place. They provide a safety net for you to back out of a sale without losing your deposit if something goes wrong.  Even if you’re in a competitive market, don’t let your emotions lead the charge. You should never skip these contingencies because they offer important protection for your home purchase.  And frankly, you’re a little nervous. What if it flunks the test?

Home Inspection

As a buyer, you have the right to a professional home inspection before you purchase the house, and you would be crazy not to do it! This is one of the most important precautions you can take before purchasing a home because it keeps you from being blindsided by structural issues or expensive repairs. The cost can vary, but it may cost a home buyer $300–500 for a home inspection. That may sound steep, but paying a few hundred dollars is worth it to avoid a costly surprise down the road!

Whether or not your new home gets a passing grade is up to you—not the home inspector—because you’re the one holding the purse strings. What are some inspection issues that should make you think twice? Here are five issues which may be more of a curse than a blessing.

• Outdated Electrical Wiring.  With today’s families using more gadgets than ever, it’s important to ensure your home’s electrical system isn’t past its prime. An upgrade may be due if your home inspector finds overloaded outlets or a panel that’s wired with too many circuits. Pay close attention to aluminum wiring if it shows up on your home inspection report. It was used between 1965 and the mid-1970s in place of copper, and it poses a dangerous fire hazard due to the potential of overheating at connections.
• Foundation Damage.  Do you remember the parable about the wise man who built his home upon the rock? If there’s one lesson we learned from that story, it’s that your foundation counts! Every home experiences some degree of settling. A qualified home inspector can tell you when a seemingly minor crack spells major trouble. Watch out for bulging or bowing foundation walls, which is a sign of structural weakness that can be expensive to repair.
• Septic Tank Failure. If your new home comes with a septic tank, make sure trouble isn’t bubbling below the surface. A septic tank that fails can cost thousands of dollars to replace. That’s a stinky way to start life in your new home! Foul odors, slow or gurgling drains, and standing water are common symptoms of a septic tank that needs TLC.
• Water Intrusion. Water is often called the source of life, but it can wreak havoc when it creeps into places it shouldn’t. Your home inspector should investigate any water stains to determine if there’s an active leak and to check for the presence of mold. A brown spot on the ceiling, for instance, may indicate a faulty roof, while stains on basement walls can clue you in to drainage issues—and neither are a cheap fix.
• Mold. A home plagued by mold isn’t just gross—it can affect your health. You can typically clean up areas of mold that cover less than 10 square feet on your own without breaking the bank. But extensive growth requires professional help. The cost of removing mold from crawl spaces, walls and ducts can easily be thousands of dollars, depending on the scope of the damage.

You can also consider getting other professional evaluations like a termite inspection or radon test, depending on the advice of your real estate agent and the age and condition of the home you’re purchasing.  Just because your home inspector uncovers an issue doesn’t guarantee the seller will fix it. 

Appraisal

If you’re getting a home loan, your lender will require an appraisal evaluating the value of the property. An appraisal protects you from paying more than the home’s true value.  The appraisal will determine the market value of the property, and the inspection will verify that the property meets the lender's standards.  Here are the five most common issues - mostly associated with (FHA) Federal Housing Administration loans - and how they can be fixed prior to loan approval to keep your dreams of home ownership alive:

• Paint. Due to lead paint concerns, the home cannot have any evidence of peeling or chipping paint. Commonly found in: Homes built before 1978. Resolution: Repainting or removal of all existing paint is required.
• Utilities. All outlets, lights, plumbing, appliances and heating and cooling systems must be operable and turned on at the main power source prior to the inspection. Commonly found in: Vacant properties, real estate-owned properties, short sales, pre-foreclosures. Resolution: Faulty utility fixtures and systems must be repaired or replaced.
• Windows. The U.S. Department of Housing and Urban Development (HUD) and some conventional investors require that barred bedroom windows without exterior access must have security release latches. Commonly found in: Garden units and street-level properties in urban areas. Resolution: Windows without security release latches must be modified.
• Handrails. To comply with HUD property safety standards, all steps and stairways must have handrails. Commonly found in: Properties with more than one floor or elevated/lower-level entrances. Resolution: Handrails must be installed near steps and stairways that don’t have them.
• Well, Water Supply & Septic Systems.  The well or septic tank and leach lines must be equipped, identifiable and an acceptable distance from property lines and sources of pollution. Commonly found in: Older properties, rural properties. Resolution: These systems must be updated or replaced if they fail a water well test.

Any issues that fall outside of FHA’s minimum standards will need to be squared away prior to closing.  The good news is that in most cases, property issues uncovered during an FHA appraisal can be resolved easily. 

Final Mortgage Approval

If you did get a mortgage, you’ll have a final step before you can close on your home: getting final approval. Final Approval is what you will need to actually close on your home. This does not happen until everything an underwriter requested is approved and a Clear to Close (CTC) is issued.

Whatever you do, don’t open a credit card, take on more debt, or change jobs once you’re under contract. Plus any changes in your financial situation can jeopardize your loan process.  Don't make these common mistakes which can mess up your final approval:

• Making large purchases on credit. The higher your debts become, the less likely it is you can keep your pre-approval. A large purchase affects your debt ratio as well as your credit score.
• Opening new credit lines. New credit means more debt. This can bring your credit score down.
• Significantly changing your credit history. Paying your debts down could bring your credit score down. The algorithm used to come up with a credit score is complicated. If you drudge up an old debt by paying it off now, your credit score could drop despite your effort at making things right.
• Making unusual deposits. The bank verifies your assets several times during the loan process. Large or inconsistent deposits could raise a red flag. You have to prove where the money came from. You may have to prove you did not incur new debts to obtain the money as well. 

An experienced real estate agent can help you navigate the contingency findings and set priorities for moving forward. If the inspection reveals major problems with the home, you can ask the seller to fix the problem, reduce the price, or cancel the contract.  Ultimately, you decide whether to walk away or negotiate with the seller, and a lot of that depends on your budget and willingness to take on a major home improvement project.  If the appraisal comes in lower than your offer price, your real estate agent will provide the best guidance for what to do next.  

Once you navigate through the contract contingencies you are ready to finally close on the purchase of your new home!