Despite the rise in interest rates, federal data shows there is still heavy competition in the housing market—meaning there could be multiple bids for fewer homes on the market.
One of the best ways to beat the competition and make your offer stand out is to ensure that no contingencies are included.
What's in this article?
But is it a good idea to bid on a home with no contingencies?
While this strategy can make your offer more attractive to sellers, it’s important to understand the risks involved and how to navigate the process successfully.
In this article, we’ll:
- Define what “contingencies” are and identify the most common ones
- Consider potential benefits and drawbacks of an offer with no contingencies
- Enumerate steps you can take to protect yourself in the process
Let’s take a look.
What are contingencies?
When you make an offer on a home, contingencies are conditions that must be met before the sale can be finalized.
The most common contingencies include:
- Financing: officially securing your lender’s approval for the loan
- Appraisal: a professional assessment to make sure the home’s value is accurate
- Inspection: a licensed expert’s investigation for any major defects or structural problems with the property
If a contingency isn’t met, the buyer can break the deal without losing their earnest money deposit.
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Why consider buying a home with no contingencies?
In a seller’s market, as has been the case particularly after the coronavirus pandemic, homes often receive multiple offers, and sellers may prioritize offers with fewer or no contingencies.
By waiving contingencies, you’re showing the seller that you’re serious about buying the property and are willing to take on additional risk to close the deal.
This can give you a competitive edge over other buyers, but there are risks associated with this strategy.
Risks of buying a home with no contingencies
Waiving contingencies can make your offer more appealing, but it also exposes you to potential problems. Let’s look at the most common contingencies and the risks associated with foregoing them.
Financing
If you waive the financing contingency and your mortgage application is denied or delayed, you could lose your earnest money deposit and potentially face legal consequences for not closing on the home.
That’s why pre-approval—or even better—Compass Mortgage’s Get Committed® program is not only beneficial in winning a bid but added security for understanding what you can realistically afford.
Appraisal
Without an appraisal contingency, you run the risk of the home being worth less than you paid for it. When it comes time to sell in the future, you’ll be responsible for covering the difference between the appraised value and the original purchase price.
It’s also possible that the home could be worth more than the appraised value, but that scenario is exceedingly rare.
Inspection
Skipping the inspection contingency means you’re accepting the property as is and may not have recourse if issues are discovered after closing. It’s common to waive this contingency to sway the seller’s decision in your favor, but it’s also common to find bigger issues with the property than you were prepared for. This is the dilemma that many buyers face in competitive markets.
How to buy a home with no contingencies: Steps to protect yourself
If you’re considering buying a home with no contingencies, take these steps to minimize your risk and protect your investment.
Get Committed®—beyond a pre-approval
Whereas most lenders will offer a standard pre-approval letter, Compass Mortgage offers a loan program that gives borrowers a fully underwritten loan commitment and locks in the interest rate even before finding a property to buy.
Get Committed®—a program exclusively offered by Compass Mortgage—enables buyers to put an attractive offer on the seller’s table, even if it’s not the highest one. This is as effective as a cash offer and both secures the financing and means that applications can close in as little as 15 days.
Secure a bridge loan or HELOC
If you’re a homeowner and need to sell your current home to finance the purchase of a new home, consider applying for a bridge loan or a home equity line of credit (often called simply a HELOC.) These two options provide short-term financing that can help you buy a new home without a contingency based on the sale of your current home.
However, keep in mind that both options may come with higher interest rates and fees compared to traditional mortgages.
Conduct a pre-offer inspection
To minimize the risks associated with waiving the inspection contingency, consider conducting a pre-offer inspection. A buyer’s agent can help to set this up with the seller.
This allows buyers to identify any potential issues before making an offer and gives a better understanding of the property’s condition and potential repair costs.
While a seller may not agree to fix any problems discovered during a pre-offer inspection, you can factor these costs into your offer price.
Review the seller’s disclosure
Depending on local regulations, sellers are often required to provide a disclosure statement outlining known issues with the property. Review this document carefully and ask questions about any concerns.
While the seller’s disclosure isn’t a substitute for a professional inspection, it can provide valuable information to help you make an informed decision.
Consult with professionals
Before waiving contingencies, consult with your real estate agent and the Compass Mortgage loan officer of your choice to ensure you understand the potential risks and consequences of submitting an offer on the house without contingencies.
These professionals can help you navigate the home-buying process and make informed decisions based on your unique situation and the characteristics of the property you’re considering.
No contingencies? The bottom line
Yes, it’s true that offering to buy a home with no contingencies can give you a competitive edge in a seller’s housing market. However, it’s crucial to understand the risks involved and take steps to protect yourself.
Getting a loan commitment through Compass Mortgage’s unique Get Committed® program can often be enough of an incentive for sellers to place your bid at the top of the pile.
Beyond that, considering alternative financing options, conducting a pre-offer inspection, reviewing the seller’s disclosure and consulting with professionals can minimize your risk and enable you to make a confident, well-informed decision.
At Compass Mortgage, we have the experience and passion for finding our clients the right mortgage solutions for the home they need.
Our dedicated team of loan officers can assist you in finding the right lending option that can save you money and secure your dream house.
Start here to find a way to get those home keys in your hand.
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