What Is a Ratified Contract and Why Do I Need One to Buy a Home?

Published on December 2, 2021 under First-Time Home Buyers

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As a homebuyer, you will likely need a ratified contract for the processing and approval of your mortgage loan application. It is an essential aspect of the process that can make or break your purchase. We've outlined everything you need to know below to help you understand what a ratified contract is and why you need one.

What is a Ratified Contract?

A ratified contract is a written and legally binding agreement between a buyer and seller. It often includes:

  • The purchase price
  • Closing costs to be paid by either party at or before closing

It also contains any special conditions that may exist, such as:

  • Inspections
  • Repairs needed before closing day (also known as punch-out criteria)
  • Contingencies (such as financing) which can allow for termination of the contract without penalty
  • An expiration date

The ratified contract is typically accompanied by a commitment letter (or pre-approval) from your lender stating that they agree to advance funds for closing on the purchase of the property.

In the home buying process, it's an important step in the mortgage loan application as it protects you and your lender from any unforeseen circumstances or issues regarding back taxes owed on the property. It ensures that all required disclosures are made, which helps to protect you against future problems.

A ratified contract ensures that both parties of the agreement have met their end of the bargain, and it protects against any last-minute changes or issues with the property itself. It allows for a smoother transition into homeownership through your mortgage loan application process.

For a contract to be considered as "ratified", it must have three key steps:

  • The buyer's offer acceptance. All of the details from this document are the buyer's offer to purchase the house. It is what they have agreed to buy and at what price, etc.
  • The seller's counter offer. You need a counteroffer from the seller with any changes or additional details that were not included in their original proposal (like an option to buy furniture from the seller at a reduced price).
  • Both parties' signatures. In the end, both the buyer and seller will sign off on this ratified contract.

Why Do I Need a Ratified Contract When Purchasing a Home?

A ratified contract is essential for several reasons. First, it legally begins your home purchase once everyone signs and all three steps are complete.

Secondly, you'll need a ratified contract to get an FHA loan. Your lender will use it to complete their portion of the loan application process (which can take up to 30 days). The contract locks down your financing terms and protects the interest of all parties involved so you can move forward with closing on your home safely.

A ratified contract also simplifies communication between multiple parties by ensuring everyone has access to a copy of this document at any time.

In most states, the terms of a purchase agreement are not valid without being in writing. A ratified contract provides a guarantee. If anything should go wrong, it is easy to provide proof of the agreement.

Where Do I Get a Ratified Contract?

Your real estate agent or broker can provide you with either a ratified contract or a purchase agreement, depending on whether it's an existing home or a new building. It's important to note that these documents may vary depending on your state and local laws, so be sure to check the requirements in your situation before proceeding.

Who Else Needs to Be Involved?

Besides you and the seller, other parties need access to the ratified contract, such as:

  • The title company. The title company will need a copy of the ratified contract to complete any necessary endorsements and paperwork before your home purchase is complete.
  • Your mortgage lender. Your mortgage company needs to sign off on all parts of this document so they can provide you with a pre-approval letter, which is required by most lenders when submitting an offer along with other documents such as a down payment check and pay stubs.
  • Your real estate agent/broker. It's also important that your agent has access to complete their due diligence.
  • The escrow company. The escrow company will need access to the document to set up your home inspections, moving costs, etc., on their end of the process to ensure that you have all the requirements before closing day.

Any Additional Things I Need to Consider?

Make sure you have all your documentation together before sitting down with your realtor, such as proof of income, bank statements, etc., so everything runs smoothly. Additionally, you will need to know the current status of your credit and any potential problems or concerns that may arise.

When submitting a ratified contract, you should also be prepared to discuss your options with an expert loan officer who can help guide you through the process and ensure everything is in order before closing on your home.

A ratified contract must be signed by the buyer, seller, lender (if applicable), real estate agent (if applicable), and any other parties named on the document, such as witnesses. It becomes valid once all parties agree on sale terms, including price and closing date; however, this varies from state to state.

What Are My Responsibilities as a Ratified Contract Buyer?

When you sign your ratified contract with the seller, it's important that you don't miss any payment deadlines. You will also need to keep up-to-date on all other financial responsibilities under this agreement, so everything runs smoothly from beginning to end.

If you want to buy a home soon, having a ratified contract is an important step that you cannot overlook. Once you have reviewed all necessary components and are ready to move forward, be sure to discuss with one of our expert loan officers so they can assist in getting your ratified contract signed as quickly as possible. For more information, contact us.

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