What Does It Mean When a House Is Under Contract?

A home being “under contract” means a seller has accepted a buyer’s offer, and both parties have formally agreed to the terms in a purchase agreement. This status signifies a commitment to the sale, though it is not yet complete. The property is no longer actively available for new offers, and several steps must occur before ownership transfers.

The “Under Contract” Status

When a house is “under contract,” a legally binding purchase agreement has been executed. This agreement details the purchase price, financing terms, and conditions for the sale to finalize. Both parties are committed to the transaction, pending fulfillment of these terms.

This status differs from a property being “active,” which means it is still on the market and available for offers. “Pending” often implies all contract conditions and contingencies have been met, and the transaction is nearing its closing date. While “under contract” and “pending” are sometimes used interchangeably, “under contract” typically denotes an earlier stage where contingencies are still being addressed.

For other buyers, a property under contract generally means it is not open for new showings or offers. However, some sellers accept “backup offers,” which become primary if the initial contract falls through. This provides a contingency plan, preventing the property from returning to the open market.

Key Milestones During This Period

Once a home is “under contract,” several evaluations and processes begin. These milestones protect the buyer and lender, ensuring the property’s condition and value align with the agreed terms. Completing these steps moves the transaction closer to its conclusion.

The home inspection, performed by a licensed professional, assesses the property’s structural integrity, major systems, and identifies defects or safety concerns. The inspector provides a detailed report, informing the buyer about the property’s condition and potential future expenses. Costs typically range from $300 to $600.

The appraisal, conducted by an independent appraiser, determines the property’s fair market value. This protects the lender by ensuring the loan amount does not exceed the property’s worth. The appraiser evaluates comparable sales, the property’s features, and its condition. This cost, typically between $300 and $700, is usually borne by the buyer.

Simultaneously, the buyer’s loan undergoes underwriting. The lender verifies the buyer’s financial information, including income, assets, credit history, and debt-to-income ratio, to confirm their ability to repay the mortgage. The underwriter also reviews the property’s appraisal and title report to ensure it meets lender guidelines. This review ensures all criteria are satisfied before final loan approval.

Underwriting can take days to weeks, depending on the buyer’s financial situation and lender efficiency. All necessary documentation, such as pay stubs, bank statements, and tax returns, must be submitted promptly to avoid delays. Successful navigation of these milestones is essential for the contract to proceed.

Understanding Contingencies

Contingencies are conditions that must be satisfied for a real estate contract to remain valid. They protect the buyer, allowing withdrawal from the agreement without financial penalty if certain events occur or conditions are not met. These clauses are negotiated and included in the purchase agreement, defining when the contract can be voided.

The inspection contingency allows the buyer to conduct a professional home inspection within a specified timeframe, typically 7 to 14 days. If the inspection uncovers significant defects, the buyer can request repairs, negotiate a price reduction, or terminate the contract and receive their earnest money deposit back. This contingency focuses on the inspection’s outcome.

The appraisal contingency safeguards the buyer and lender against overpaying. This clause stipulates the home must appraise for at least the purchase price. If the appraisal is lower, the buyer can renegotiate, make up the difference in cash, or exit the contract without losing earnest money. This prevents obligation to a mortgage on a property worth less than the loan amount.

The financing or loan contingency makes the sale dependent on the buyer securing mortgage financing. This protects the buyer if their loan application is denied due to factors like credit score changes or employment status. The buyer typically has 21 to 30 days to obtain loan approval. If financing falls through, the buyer can terminate the contract and recover their deposit.

A sale of current home contingency allows a buyer needing to sell their existing property to finance a new purchase to make their offer contingent on their current home’s successful sale by a specific date. If their home does not sell within the agreed timeframe, they can withdraw from the contract for the new home without penalty. This provides a safety net for buyers coordinating two real estate transactions.

Preparing for Closing

Once contingencies are met, the transaction shifts to preparing for closing. This involves administrative and logistical tasks to ensure a smooth transfer of ownership. It signifies that major hurdles have been cleared, and both parties are nearing the culmination of the purchase agreement.

The title search, conducted by a title company or attorney, investigates the property’s public records to confirm the seller’s ownership and identify any liens. Following a clear title search, title insurance is typically purchased by the buyer, often at the lender’s requirement. This insurance protects both the buyer and the lender from future claims against the property’s ownership. Costs can range from a few hundred to over a thousand dollars.

Final loan approval is granted once underwriting is complete and all conditions are satisfied, leading to a “clear to close” notification. This confirms the financing is secured.

Shortly before closing, typically within 24 to 48 hours, the buyer conducts a final walk-through. This ensures the home is in the agreed condition, any negotiated repairs are complete, and no new damage has occurred since the inspection.

On closing day, all parties meet to sign legal documents. This typically occurs at a title company, escrow agent, or attorney’s office. Documents include the mortgage note, deed of trust, and the closing disclosure, detailing all financial aspects. Funds are transferred from the lender to the seller, and the deed is recorded, officially transferring ownership. The buyer then receives the keys.