When Do You Go Under Contract for a House?

Purchasing a home is a significant undertaking and a substantial financial commitment. Understanding the various stages of the transaction is important. One of the most important phases is when a home officially goes “under contract,” marking a transition from casual interest to a formal commitment.

Steps Before the Contract

The initial phase of home buying involves a thorough search for properties that align with a buyer’s specific needs and financial capabilities. This often includes collaborating with a real estate agent who can provide market insights, identify suitable listings, and arrange property viewings. Once a desirable home is identified, the buyer prepares a formal written offer outlining the proposed purchase terms.

This offer typically details the suggested purchase price, any desired contingencies such as the need for financing or a satisfactory home inspection, and a preferred closing date. Along with the offer, buyers usually include an earnest money deposit, which demonstrates their serious intent to purchase. This deposit, commonly ranging from 1% to 3% of the purchase price, is a good-faith payment held in an escrow account.

Upon receiving an offer, the seller has several options: accepting it, rejecting it, or submitting a counteroffer. This can lead to a negotiation period, with counteroffers potentially adjusting the price, closing date, or specific contingency terms until both parties agree. Once the seller formally accepts the buyer’s offer, a preliminary agreement on the core terms is established, setting the stage for drafting a comprehensive purchase agreement.

Understanding the “Under Contract” Status

When a home is designated “under contract,” it signifies a legally binding agreement between the buyer and seller for the property’s sale. This agreement, often termed a purchase agreement or sales contract, outlines all the specific terms and conditions that must be met for the transaction to proceed. A crucial aspect of this contract is the earnest money deposit, which is held by a neutral third party until closing.

This deposit demonstrates the buyer’s commitment and is usually applied towards the down payment or closing costs. The contract also enumerates various contingencies, such as those related to financing, a home inspection, or an appraisal. These contingencies act as conditions that must be satisfied for the sale to finalize, providing protection for both parties.

Once the contract is signed, both the buyer and the seller assume legal obligations to proceed with the transaction, provided all specified conditions are met. The seller typically removes the property from the active market, committing to the current buyer. For the buyer, this means a commitment to purchase the home, and failure to meet contractual obligations without valid cause can result in the forfeiture of the earnest money deposit.

Key Activities During the Contract Period

After a home is officially “under contract,” a series of specific actions and processes unfold before the closing can occur. A primary step involves the home inspection, where the buyer typically hires a licensed inspector within a specified timeframe, often 7 to 14 days, to evaluate the property’s condition. The inspector provides a detailed report on the home’s structural and mechanical systems, which can lead to further negotiations for repairs or credits if significant issues are found.

Simultaneously, an appraisal is usually ordered by the buyer’s lender to determine the property’s fair market value. An independent appraiser assesses the home based on its condition and comparable sales in the area. If the appraised value is lower than the agreed-upon purchase price, it can impact the loan amount, potentially requiring the buyer to address the difference or renegotiate the sales price.

Buyers then work to finalize their mortgage loan, a process that involves submitting extensive financial documentation to the lender, including income verification and asset statements. The loan undergoes underwriting to assess the buyer’s creditworthiness and the property’s value, culminating in a loan commitment letter.

A title company conducts a thorough title search to ensure the seller has clear ownership of the property and that there are no undisclosed liens, easements, or other encumbrances. Title insurance is then purchased, providing protection for both the buyer and the lender against potential future claims against the property’s title. Finally, a few days before closing, buyers conduct a final walk-through to confirm the property is in the agreed-upon condition, all negotiated repairs are completed, and the home is vacant and ready for occupancy.