What Happens When a House Is Under Contract?

When a house is listed as “under contract,” it signifies a significant milestone in the real estate transaction process. This status indicates that a buyer has submitted an offer, and the seller has formally accepted it, leading to a legally binding agreement. This acceptance initiates a period of due diligence, during which both parties work to fulfill various conditions before the final transfer of ownership. This phase ensures all terms of the agreement are met and protects the interests of both the buyer and the seller.

Key Contingencies and Their Purpose

A real estate contract includes several contingencies, which are conditions that must be satisfied for the sale to proceed. These clauses serve as safeguards, allowing either the buyer or seller to withdraw from the agreement without penalty if certain terms are not met within a specified timeframe.

A financing contingency protects the buyer if they are unable to secure the necessary mortgage loan. If the buyer’s loan application is denied, they can exit the contract and receive their earnest money deposit back. An appraisal contingency provides protection if the home’s professional valuation comes in below the agreed-upon purchase price, preventing the buyer from overpaying.

A home inspection contingency allows the buyer to conduct a professional inspection of the property. This enables the buyer to identify potential issues and negotiate repairs or adjustments to the sale terms, or even cancel the contract if significant problems are found. Other contingencies, such as the sale of the buyer’s current home, may also be included.

Navigating the Financing and Appraisal Processes

Once the contract is signed, the buyer proceeds with securing their mortgage, a process that involves submitting final documentation to their lender. This paperwork includes updated income verification and recent bank statements to confirm assets for the down payment and closing costs. The lender then initiates the underwriting process, where an underwriter reviews the buyer’s credit history, income, assets, and property details to assess repayment ability and risk.

The lender orders an appraisal of the property, an independent valuation performed by a licensed appraiser. Lenders require assurance that the home’s value supports the loan amount. The appraiser visits the property to evaluate its condition, size, and features, comparing it to recently sold, similar homes to determine its fair market value.

The appraisal report is provided to the lender and the buyer. If the appraisal value matches or exceeds the purchase price, financing continues toward final loan approval. If the appraisal comes in lower than the agreed-upon price, the buyer, protected by the appraisal contingency, can renegotiate the price with the seller, cover the difference in cash, or withdraw from the contract without losing their earnest money.

Conducting the Home Inspection and Addressing Findings

The home inspection is part of the due diligence period, which the buyer arranges with a professional inspector. The inspector examines the property’s structure and systems, including the roof, foundation, electrical, plumbing, and HVAC, to identify any defects or safety concerns. Buyers can attend the inspection to gain a firsthand understanding of the property’s condition and ask questions.

Following the inspection, the buyer receives a detailed report outlining any discovered issues. This report serves as a basis for potential negotiations with the seller. Buyers can request that the seller address significant problems.

Negotiations can take several forms, including asking the seller to complete repairs before closing, offering a credit at closing to offset future repair costs, or seeking a reduction in the purchase price. If the parties cannot agree on how to resolve the inspection findings, the home inspection contingency allows the buyer to terminate the contract. Buyers prioritize major issues rather than requesting fixes for every minor cosmetic flaw.

Ensuring Clear Title and Final Preparations

A title company ensures the property’s legal ownership is clear. They conduct a title search, examining public records to verify that the seller has the right to transfer ownership and that there are no undisclosed liens, easements, or other claims against the property. This investigation helps prevent future legal disputes over ownership.

Should the title search uncover any issues, these must be resolved before closing. The buyer purchases title insurance, which protects both the buyer and the lender against financial loss due to defects in the title that may emerge after the sale.

Buyers also need to secure homeowner’s insurance, which is required by mortgage lenders. This policy covers potential damages to the home from events like fire or storms. Buyers should plan for the transfer of utilities into their name, coordinating with local service providers on or around the closing date.

Before closing, the buyer receives a Closing Disclosure (CD) at least three business days prior to the scheduled closing date. This document provides a detailed breakdown of all financial aspects of the transaction, including the loan terms, estimated monthly payments, and all closing costs. Reviewing the CD and comparing it to the initial Loan Estimate ensures accuracy and identifies any unexpected changes.

The Final Walkthrough and Closing Day

The final walkthrough is conducted just before closing, typically 24 hours to a few days prior. Its purpose is for the buyer to confirm that the property is in the agreed-upon condition, any negotiated repairs have been completed, and the seller’s personal belongings have been removed. This is the buyer’s last opportunity to inspect the home before taking ownership.

Closing day marks the official transfer of ownership and the culmination of the homebuying process. On this day, the buyer, seller, and other involved parties gather to finalize the transaction. The buyer signs numerous legal documents, including the mortgage note and the deed, which officially transfers the property into their name.

Funds are exchanged, with the buyer providing the down payment and remaining closing costs. Once all documents are signed and funds disbursed, the keys to the home are handed over to the buyer. The deed is recorded with the local county office, making the new ownership a matter of public record.