14 Legit Reasons to Back Out of a Home Purchase
In this article, we will be navigating through the 14 legit reasons to back out of a home purchase. If you wish to skip our detailed analysis, you can move directly to the 5 Legit Reasons to Back Out of a Home Purchase.
Calling Off a Home Purchase
The home-buying process can be overwhelming for many. Although this process is expected to be mutually beneficial for all parties involved such as the buyer, the seller, and the real estate agent, there are many potential problems that can make the buyer call off the deal.
A bright side to the probable problems is the presence of several contingencies that can help the buyer exit the deal without incurring a loss. A basic contingency in this regard is the inspection contingency which gives the buyer an opportunity to undertake an inspection of the property within a specified time period. In case the inspection reveals major problems, the buyer can back out of the contract. Based on the terms of the inspection contingency, the buyer can either leave the purchase and get the earnest money back or request the repair required. The final outcome will finally depend on whether the seller agrees to make the repairs or not.
Financial burden and affordability issues tend to be a core limiting factor for homebuyers since many of them rely on some sort of financing. You can take a look at the cities where you can buy a home for under 300k. Addressing the financial constraints, the mortgage contingency gives the buyer some time to secure financing for the home purchase. This serves as a sense of relief since the buyer can simply back out if the lender refuses to give the money due to any circumstances. These circumstances will be discussed later as reasons to back out of a home purchase on our list. Some of the biggest mortgage companies in the US have also been covered.
The buyer can escape any legal consequences in case of a home sale contingency as well. This is when the buyer is dependent on the sale of an existing house to proceed with the purchase of the new one. Apart from protecting the buyer's interests, contingency clauses also support the seller. For instance, the kick-out clause gives the seller the right to keep marketing the house to other buyers and to sell the house to a better buyer if the current buyer doesn't remove the aforementioned house sale contingency within a specific time.
Leading Homebuilders Providing Decent Options
Despite the risks associated with the purchase of a house which can make the buyer call it off, homebuilders across the US tend to facilitate a smooth home-buying process. Some of these include Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH), and PulteGroup, Inc. (NYSE:PHM). Other large homebuilders in the US have also been previously covered.
Lennar Corporation (NYSE:LEN) is an American home construction company that constructs affordable, move-up, and active adult homes primarily under the Lennar brand name. It also engages in the development of high-quality multifamily rental properties. On February 16, Lennar Corporation (NYSE:LEN) reported that home sales in its new single-family community ‘Stonehill Manor’ will commence in March. Due to the positioning of the community, residents can easily commute to downtown Fort Myers. Popular beaches in the region can also be accessed.
KB Home (NYSE: KBH) is one of the largest home builders in the United States. The company focuses on fostering interpersonal relationships with its customers by building homes unique to each customer based on their budget. On February 9, KB Home (NYSE: KBH) reported the grand opening of its new community in Buckeye, Arizona. The community ‘Mystic Vista Traditions’ allows residents to seek employment options in the Phoenix area. Outdoor recreation can also be undertaken at the Skyline Regional Park and Estrella Mountain Regional Park. Pricing for the new home starts from the low $300,000s.
PulteGroup, Inc. (NYSE:PHM) is an American residential home construction company. The firm operates Pulte Homes which constructs consumer-inspired homes in more than 40 markets across the US. On February 15, PulteGroup, Inc. (NYSE:PHM) reported the grand opening of Rookery Lane at Concord, a new Boston area community. Those who wish to live in the community can conveniently access Boston and Concord. Nearby hiking trails and parks can also be visited. Prices for the new homes begin at $1,339,995.
Without further ado, let’s move to the 14 legit reasons to back out of a home purchase.
14 Legit Reasons to Back Out of a Home Purchase
Our Methodology:
In order to compile a list of the 14 legit reasons to back out of a home purchase, we carried out a comprehensive consensus. We sifted through more than 10 sources to gather all the valid reasons that make home buyers walk away from the home-buying process. All the reasons that were most commonly cited have been ranked in our list based on their common appearance across our sources.
By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.
14 Legit Reasons to Back Out of a Home Purchase
14. Disputed Boundary Lines
Disputed boundary lines are one of the reasons to back out of a home purchase. If the land survey reveals that the boundary measurements are different than what was originally disclosed, the buyer can choose to walk away from the deal. This is because buyers expect the property details to be legit in the first place.
13. An Option Period
In contracts where an option period is included, the buyer can back out within this period without any penalty or reason. Hence, this temporary time period can allow the buyer to leave the home-buying process.
12. Agent Pressures into Making an Offer
If the buyer feels like the real estate agent is unnecessarily placing pressure to make an offer, the decision to back out of the home purchase can be taken. This is a precaution that helps the buyer avoid any problems that can potentially arise in the future from a purchase made under pressure and in a hurry.
11. Seller Denies Extension in the Due-Diligence Period
During the due diligence period agreed upon by the parties, the buyer can carry out an appraisal or inspection of the property. If the seller doesn’t extend the due diligence period and the buyer is not yet satisfied with the evaluation of the property, he can back out of the purchase. This is because the buyer demands more time to make an informed decision regarding the home purchase in this case.
10. Unaffordability in Case of Monthly Mortgage Payments
The mortgage rate can even fluctuate after the pre-approval. In case the rate goes up, the monthly mortgage payments also increase which can raise affordability concerns for the buyer. Hence, the lack of affordability of monthly mortgage payments is one of the legit reasons to back out of a home purchase.
9. Local Zoning Restrictions
Many times, the buyer has plans to upgrade the house in the future, However, the local zoning restrictions might now allow the buyer to do so. In this case, the imposed restrictions become the buyer’s reason to walk away from the deal.
8. Title Issues
A transparent title transfer can be halted by various issues. The legal document of the property might have an error that needs to be fixed to move forward with the deal. In case the seller has some debt that he has not paid, a lien can also be filed against the property. Another common issue in this regard is missing heirs who tend to have ownership of the property.
7. Change in Employment Status
Sometimes, the buyer gets subjected to unpredictable circumstances such as the loss of a job. Such events might not allow the buyer any financing. Since financing tends to be a primary factor for many home buyers, the declined loan will make the buyer back out of the home purchase. Hence, a change in employment status is one of the reasons behind exiting the home-buying process.
6. Denied Loan Financing
In case the buyer is denied the loan and is unable to secure the financing even after the pre-approval, a loan contingency allows the buyer to back out of the home purchase. This denial could be due to a change in the financial situation of the buyer due to which the lender denies the final loan.
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Disclosure: None. 14 Legit Reasons to Back Out of a Home Purchase is originally published on Insider Monkey.
