Adding Contingencies to Your Contract When Using a VA Loan

The VA loan program stands out for its exclusive benefits tailored to military members and veterans who have served our nation. VA loans meet specific eligibility criteria outlined in VA loan requirements by offering the unique advantage of purchasing a home with no down payment or mortgage insurance.   

Understanding how VA loans operate is paramount for individuals contemplating this financing option. By providing accessible homeownership opportunities and streamlined processes, VA loans empower service members and veterans to achieve their housing goals while honoring their dedication to serving the country. 

Today, we will focus on the subject of contract contingencies and how you can use them to protect your earnest money when using a VA loan. 

Adding Contingencies to Your Contract When Using a VA Loan

Among all the VA loan programs, what makes it outshine as the best is its unique benefits explicitly designed for the military members and veterans who have sacrificed their lives for our country. VA loans are a rare type of mortgage that can be acquired with no down payment or mortgage insurance.  

A candidate should meet the specific eligibility standards defined in a VA loan regulation to qualify for these loans. A deep understanding of the workings of the VA loans is a factor worth considering for anyone considering this type of financing.  

VA loans assist in mobilizing affordable homeownership and give veterans easier and faster access to housing dreams that they deserve after making sacrifices for the country’s security and safety. 

Real Estate Contract Contingencies Explained 

In a real estate and home buying context, a “contingency” is a condition that must be met for the deal to proceed. When you add contingencies to your purchase offer, you make the offer contingent upon those conditions.  

It could be an exit strategy that applies to real estate transactions. When a home buyer using a VA loan attaches contingencies to the offer, it gives them a way to back out of the deal in specific scenarios.  

More importantly, it can protect the buyer’s earnest money deposit so they don’t sacrifice it when exiting the transaction. If written correctly, loan contingencies allow the buyer to recover the deposit money.  

All home buyers can include contingencies within their purchase offers and contracts. This applies to those using conventional, FHA, and VA mortgage financing. In the case of VA loans, real estate contract contingencies give the borrower/home buyer an added layer of protection.  

With that definition out of the way, let’s shift gears and examine some contingencies that can be used with a VA loan-backed home purchase.

Types of Contingencies Used With VA Loans 

To be clear, you’re not required to use contract contingencies when buying a house. And there might be scenarios where you’re better off not using them at all. 

However, it’s crucial to understand how do VA loan work and familiarize yourself with VA loan requirements. Knowing this information can help you make informed decisions when creating your offer and considering contingencies. So, let’s explore the most common contingencies used with VA loans: 

Home Appraisal 

The home appraisal contingency is an ultra-important safety measure for VA loan borrowers because it guarantees that the experts must fairly value the property mandating VA loans appraisal. This contingency shields buyers from overpaying for a home.  

VA loan homesteaders have numerous possibilities if the appraisal discloses a disproportion with the purchase price. The latter may argue with the seller on account of the price adjustment being consistent with the appraisal, thus securing their financial investments.  

Alternatively, they may not agree to the contract but instead, retain the right to get a full refund of the earnest deposit money. Through the contingency clause as one case, VA loans ensure transparency and sound financial footing for active-duty soldiers and veterans during the home-buying journey. 

Home Inspection 

VA loan buyers can perform a comprehensive check of the property using their home Inspection contingency option, which guarantees a property undergoing a verified condition assessment by a qualified inspector.  

Such crucial staging involves finding any significant repairs or problems that are not seen during walk-throughs. If serious issues are revealed in the evaluation stage during the inspection, buyers have the right to protect their properties.  

The buyers can leave the deal and save their financial stability or go through the problem with the seller to make the ongoing process go ahead.  

Mortgage Financing  

The mortgage financing contingency is an integral part of a VA loan package as it provides a buyer a period to work out the home purchase loan. This contingency is like a security blanket in that buyers can cancel the contract and get back their full deposit money without asking questions if they cannot secure a loan.  

This provision will especially be necessary for VA borrowers because it can flexibly address financial obstacles, enabling them to plan their way around housing financing confidently. The presence of an exit strategy for the VA financing contingency is an illustration of the VA loan’s commitment to supporting military personnel and veterans in homeownership by making the homeownership process as seamless as possible.  

Sale of Current Home  

Home sale contingency is a strategic provision in VA loans, offering flexibility to buyers who must sell their current property before completing the purchase of a new home. This contingency empowers buyers to safeguard their financial interests by providing an exit route from the contract should they face challenges in selling their existing home.  

Particularly beneficial for those relying on proceeds from the sale to fund their down payment and closing costs, this contingency ensures careful timing and protection throughout the home-buying process. By accommodating the complexities of selling and purchasing simultaneously, VA loans prioritize the smooth transition of military personnel and veterans into new homes.  

Title Contingency  

The title contingency within VA loans ensures buyers obtain properties with clear ownership, free from legal disputes that might impede their rights. By placing responsibility on sellers to rectify any title defects, this contingency safeguards buyers’ interests.  

If unresolved issues arise, buyers can terminate the contract, preventing potential legal or financial entanglements. In alignment with other VA loan contingencies, such as appraisal and inspection, the title contingency underscores the program’s commitment to shielding military members and veterans from adverse legal or financial ramifications.  

Together, these contingencies uphold the integrity and security of the home-buying process for VA loan beneficiaries. 

The Importance of Working with a Knowledgeable Real Estate Agent 

Navigating the complexities of VA loans and contingencies can be challenging, which is why it’s essential to work with a real estate agent or broker experienced in handling VA loan transactions.  

A well-versed agent can guide you through the process, ensure that contingencies are appropriately addressed, and advocate for your best interests.  

Addressing Common Misconceptions About VA Loans  

Several misconceptions about VA loans may deter potential buyers from considering this financing option. It’s important to dispel these myths and provide accurate information to help individuals make the right decisions.  

Here are some common misconceptions about VA loans:  

Misconception: VA loans are only for active-duty service members.  

Fact: VA loans are available to eligible veterans, reservists, National Guard members, and surviving spouses.  

Misconception: VA loans take longer to close.  

Fact: VA loans can close as quickly as conventional loans, provided all necessary documentation is in order.  

Misconception: VA loans require perfect credit.  

Fact: While credit requirements vary by lender, VA loans generally have more flexible credit score requirements compared to conventional loans.

How to Include Them in Your Purchase Offer 

So, how do you actually include a contingency in your purchase offer when using a VA home loan? The easiest way is by using a standard contingency clause and pasting it right into your offer.  

But before we get to that, some terminology:  

The “purchase offer” is the initial document submitted by the buyer to the seller, outlining the terms and conditions under which the buyer is willing to purchase the property. If the seller accepts the offer, it becomes a binding “contract.”  

Contingencies are typically written in the purchase offer, specifying the conditions that must be met for the sale to proceed. Real estate agents often have templates with these clauses that they can tailor for each transaction.  

While standardized clauses provide a good starting point, they should be tailored to the specific circumstances of the transaction. For example, the buyer might want to specify the timeframes for inspections or indicate the exact conditions that must be met for financing.  

Consider Local Housing Market Conditions First  

When using a VA-guaranteed mortgage loan to buy a house, you have the right to include certain contingencies within your offer. But whether or not you should actually use them depends partly on local market conditions.  

In a competitive market, sellers may be more likely to accept offers that have fewer contingencies. If there are multiple buyers interested in a home, the seller may choose the offer that is most likely to close quickly and smoothly. Offers with fewer contingencies are generally less risky for sellers. 

In a slower market, on the other hand, VA loan buyer contingencies are less likely to cause a problem. With fewer offers coming in, the seller will probably be more motivated to make a deal and less deterred by the contract contingencies you include.