When you are ready to make an offer to purchase a home, your real estate agent will complete a purchase offer, which you will sign. If the offer is accepted, the sellers will sign it. At that point, you have entered into a binding agreement.
But before you make an offer to buy a home, we recommend that you get to know the contract you're about to enter into by asking your real estate agent for a blank copy of the contract he or she uses, studying that form carefully, and asking your agent questions about terms or clauses you don't understand. That way you're prepared to move and offer quickly when you find the right home. Remember, just because something is written in the contract doesn't mean it can't be crossed out.
While there is no one "standard" home loan purchase contract, there are a number of terms that every contract should and will include.
Good-faith earnest money deposit. Although this is not required, an offer that does not include this proof of your willingness and commitment to buying the house is weak. Typical deposits range from 1% to 5% of the purchase price; often, this small deposit is increased after all inspections of the property are complete and the contingencies have been removed. A large deposit check, held in a trust account that the seller can't access, can act to strengthen an offer.
Inspection contingency clauses.Smart homebuyers and real estate agents insist on a contingency period for professional inspections. You have the right to inspect the property at the same time as the professional inspectors, and in fact, that is recommended. If you don't approve an inspector's report, or if the seller won't correct problems you need fixed, the purchase can be canceled and your good-faith deposit returned.
Mortgage finance contingency clause. Unless you're paying all cash for a property, you'll want to include a mortgage finance contingency clause. This gives you time to be absolutely sure you can get the loan you need to finance your purchase. Even though you may be pre-qualified and pre-approved, your lender will still need information about and an appraisal for the property you're purchasing. If for some reason you are unable to secure a loan for the property - if the appraisal is less than the property price, for instance - the mortgage finance contingency clause allows the purchase to be canceled and your good-faith deposit to be returned.
Personal property clause. The purchase offer should specify which personal property items you would like included with the structure in the purchase. Examples may include appliances, window coverings, screens, carpets, TV antennas, and the like.
Liquidated damages clause. The liquidated damages clause specifies that if you default or cancel the contract without good cause (e.g., one of the contingency clauses above), the seller is entitled to keep all or part of your good-faith deposit as a forfeiture and agreed damages. This clause eliminates the need to go to court if you default on the contract, because both you and the seller have agreed upon the penalty.
The terms above, and the two contingency clauses in particular, are usually more than enough to protect you as the homebuyer. However, some buyers also prefer to include a clause (an "all-inclusive weasel clause") that allows time for your attorney or financial advisor to review the contract after it has been accepted.