What type of legal contracts are used when buying a home?

When buying a home, several legal contracts and documents are used to formalize the transaction and protect the interests of all parties involved. These contracts vary by location and transaction specifics but generally fall into the following categories:

1. Offer Agreement

• What It Is: A real estate offer is a formal proposal made by a prospective buyer to purchase a property. It outlines the terms and conditions under which the buyer is willing to acquire the property, including the purchase price, contingencies, and timelines. The offer serves as the first step in negotiating a legally binding contract between the buyer and the seller.
• Key Features:
  • Purchase Price: The amount the buyer is willing to pay.
  • Earnest Money Deposit: A good faith deposit demonstrating the buyer’s commitment.
  • Contingencies: Conditions that must be met before the sale is finalized, such as:
    • Financing approval.
    • Property inspection.
    • Appraisal.
  • Closing Date: The proposed timeline for completing the transaction.
• Importance: When accepted, the offer becomes the foundation for the Purchase Agreement, a legally binding contract.

2. Purchase Agreement (Sales Contract)

• What It Is: The central contract between the buyer and seller outlining the terms and conditions of the sale.
• Key Features:
  • Purchase price and payment terms.
  • Contingencies (e.g., financing, appraisal, inspection).
  • Closing date and possession terms.
  • Obligations for repairs or adjustments.
  • Earnest money deposit amount and conditions for forfeiture or return.
• Importance: Serves as the legal framework for the transaction.

3. Financing Contracts

a. Loan Agreement (Mortgage)

• What It Is: A contract between the buyer and lender outlining the terms of the mortgage loan.
• Key Features:
  • Loan amount, interest rate, and repayment terms.
  • Escrow account details for taxes and insurance.
  • Default and foreclosure provisions.

b. Promissory Note

• What It Is: A document in which the buyer agrees to repay the loan under the specified terms.
• Key Features:
  • Loan repayment schedule.
  • Interest rates and penalties for late payments.

c. Closing Disclosure

• What It Is: A document provided to the buyer by the lender outlining all final loan terms and costs.
• Key Features:
  • Total closing costs.
  • Monthly payment breakdown (principal, interest, taxes, insurance).

4. Contingency Addendums

• What They Are: Additional clauses or agreements added to the purchase contract to protect either party if specific conditions are not met.
• Examples:
  • Inspection Contingency: Allows the buyer to back out if the home inspection reveals major issues.
  • Financing Contingency: Lets the buyer withdraw if they cannot secure a loan.
  • Appraisal Contingency: Protects the buyer if the home appraises for less than the purchase price.

5. Title and Escrow Documents

a. Title Insurance Policy

• What It Is: A contract between the buyer (and lender) and a title insurance company protecting against title defects or disputes.
• Key Features:
  • Covers issues like liens, boundary disputes, or fraudulent claims.

b. Escrow Agreement

• What It Is: An agreement with a neutral third party (escrow agent) to manage the funds and documents during the transaction.
• Key Features:
  • Defines the responsibilities of the escrow agent.
  • Conditions for disbursement of funds and release of documents.

6. Deed

• What It Is: The legal document that transfers ownership of the property from the seller to the buyer.
• Types of Deeds:
  • Warranty Deed: Guarantees the title is clear and free of liens.
  • Quitclaim Deed: Transfers the seller's interest in the property without guarantees.
• Key Features:
  • Names of the buyer (grantee) and seller (grantor).
  • Legal description of the property.

7. Seller Disclosures

• What They Are: Legal documents where the seller provides information about the property’s condition.
• Key Features:
  • Details of known defects, past repairs, or environmental hazards.
  • Compliance with federal and state laws (e.g., lead-based paint disclosure for homes built before 1978).

8. Homeowners’ Association (HOA) Agreements

• What It Is: If the property is in an HOA-managed community, this contract outlines the rules, fees, and obligations.
• Key Features:
  • HOA dues and special assessments.
  • Rules for property modifications, landscaping, or parking.

9. Inspection Reports and Contracts

a. Home Inspection Report

• What It Is: A detailed report of the property’s condition provided by a licensed inspector.
• Importance: Used to negotiate repairs or adjust the purchase price.

b. Repair Agreements

• What It Is: An agreement detailing repairs the seller must complete before closing.

10. Settlement Statement

• What It Is: A document summarizing all financial aspects of the transaction.
• Key Features:
  • Itemized list of costs for both buyer and seller.
  • Final amount owed by the buyer at closing.

11. Power of Attorney (If Applicable)

• What It Is: A legal document allowing someone to act on behalf of the buyer or seller in the transaction.
• Use Case: Often used if the buyer or seller cannot attend the closing in person.

12. Post-Closing Agreements (If Applicable)

• Examples:
  • Rent-Back Agreement: Allows the seller to remain in the home temporarily after closing.
  • Escrow Holdback Agreement: Funds held in escrow for incomplete repairs or obligations.

Summary of Key Legal Contracts When Buying a Home

Disclaimer/Disclosures:

The information provided on this website is for general informational and educational purposes only and must NOT be construed as legal, financial, investment or any other expert advice. Real estate investing involves many risks; any content, presentations, pages, blog posts must not be construed as expert advise, results vary based on many many factors and variables.

We make no representations or warranties about the accuracy or reliability of the information provided. 

Always consult a licensed expert, real estate professional and/or financial advisor about your real estate and investment decisions. 

View our Disclosures, Privacy Policy and Terms & Conditions.