Financing contingency.
In plain English
A financing contingency, sometimes called a mortgage or loan contingency, is a clause in your purchase contract that makes the sale depend on you actually getting your loan approved. It gives you a deadline to secure financing. If the lender denies your loan within that window, the clause lets you cancel the deal and get your earnest money deposit back instead of losing it. It protects you from being on the hook to buy a home you cannot get a mortgage for. As with other contingencies, some buyers waive it to compete, which is risky.
01Why it matters
Without this clause, a denied loan could mean breaking the contract and forfeiting a deposit worth thousands, even though the failure was your lender's decision, not yours.
02The math, step by step
You sign a contract with a financing contingency and a set deadline to lock in your mortgage. During underwriting, the lender denies the loan because the home appraised low and your income no longer covers the larger gap. Because the contingency is in place and you acted within the deadline, you cancel the purchase and your $8,000 earnest money deposit is returned rather than kept by the seller.
03What this is NOT
A pre-approval is the lender's early signal that you likely qualify. A financing contingency is the contract protection in case the final loan still falls through. A pre-approval is not a guarantee, which is exactly why the contingency exists.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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