There are several pieces of documentation that may play an important role in a mortgage and homebuying situation, and one of these is known as a ratified contract. Referring to an agreement between the buyer and seller for the home in question, this contract will go over a few basic details surrounding the sale, plus various conditions that must be met for the sale to move forward.
At Altius Mortgage and our partners with Mortgage Ogden, we’re proud to offer a wide variety of home loans, mortgage refinancing options and more, and we’ll assist you with each and every piece of documentation that’s involved in your home purchase process. What is a ratified contract, why do you need one when purchasing a home, and what are the important elements involved? Here’s a basic primer.
Ratified Contract Basics
As we alluded to above, a ratified contract is a written, legally-binding agreement between a homebuyer and the seller of the home, typically covering not only the purchase price, but also closing costs that are required plus any special conditions that may be present.
These conditions can include any of the following:
- Any inspections that are required for the sale to be finalized, such as a home appraisal or pest inspection
- Whether repairs need to be made in advance of the sale completing
- The date that possession of the home will take place
- What fees are involved in closing on the transaction itself
- An expiration date for the contract
Once these and any other relevant conditions have been ironed out and agreed to by both parties, the ratified contract will become a key piece of documentation in the homebuying process. It will outline all of the agreed-upon points between buyer and seller, and can be used as a reference down the line if any disputes or problems should arise. It will typically come along with a commitment or pre-approval letter from your lender, one that states the lender’s intent to finance the purchase of the home at the agreed-upon terms.
The term “ratified” is important here, ensuring that both parties meet their end of the arrangement. There are three important steps that must be met for a contract to be considered ratified:
- Buyer’s offer accepted: All the details of the sale have been agreed to by both the buyer and seller, and the offer has been accepted by the home’s current owner.
- Seller counter-offer: If any changes or additional details that were not included in the original offer are included, the seller will provide a counter-offer.
- Sale contract signed: When both parties sign the document, it becomes an official ratified contract.
Why is a Ratified Contract Needed?
There are several reasons why a ratified contract is important within a homebuying situation, and the first is the legally binding nature of the agreement. Both parties have agreed to everything in writing, so all of their respective responsibilities are outlined ahead of time. There’s no need for arguing over who said what or who should be responsible for paying for what; both sides simply go through with their own parts as set out by the contract itself.
Another important reason why a ratified contract is required is the need to prepare for closing. Note that you can’t get a loan on a home until the contract has been signed, which enables your lender to start working on underwriting your mortgage. You’ll also want to go over all of the details of what’s covered in the agreement, ensuring there are no surprises down the road related to your purchase.
Finally, having a ratified contract in place can help to speed up the process of actually buying the home. All of the pertinent information has been agreed to by both parties, so there’s no need for any back-and-forth negotiation – closing can take place as soon as all of the necessary paperwork is ready.
Furthermore, certain loan programs actually require a ratified contract to move forward at all. This is the case for an FHA loan, for instance, where your lender will use the contract to verify that the home you’re intending to purchase meets all of the program’s eligibility requirements.
In nearly all cases, your ratified contract will be provided to you by your real estate agent — they may also provide you with a purchase agreement at this time, depending on whether you’re purchasing an existing home or a new structure. However, there are also multiple other parties that will be involved here, including:
- Seller: As we noted above, this is the party that owns the home in question and has agreed to sell it to the buyer.
- Title company: The title company needs a copy of the ratified contract to carry out any endorsements or other legal aspects related to the home’s closing. They also need proof of homeowners insurance for the buyer, proof of property ownership by the seller, and other documents relating to this purchase agreement.
- Mortgage lender: Your lender also needs to sign off on various parts of the document, allowing them to provide your pre-approval letter as well as underwriting your mortgage.
- Home inspector: The home inspector will be checking out the property to identify any and all potential issues ahead of time, so that they can be addressed before closing.
- Escrow company: To ensure they have all the documentation they need, you can hire an escrow company to handle the details of your purchase.
Getting Documents Together
Ahead of closing time, it pays to sit down and ensure you have all your important loan documentation together. This includes things like proof of income, bank statements, and tax returns. Having a ratified contract in hand will help make this process easier, as you’ll know exactly what needs to be submitted and when.
If all goes according to plan, closing should take place without any hitches. However, if there are any issues that come up along the way, your ratified contract will be an invaluable resource in getting everything sorted out. With all the pertinent information in one place, it’ll be much easier to identify and address any potential problems.
For more on the ratified contract, or to learn about any of our mortgage rates or home loan services in Ogden or any other part of Utah, speak to the pros at Altius Mortgage today.