What is a Financing Contingency?

A financing contingency is a crucial component in real estate transactions that allows the buyer time to secure financing. It provides a safety net for the buyer and ensures that they are not obligated to proceed with the purchase if they are unable to obtain the necessary financing.

How Does a Home Loan Contingency Work?

A home loan contingency is a type of financing contingency that specifically pertains to obtaining a mortgage for the purchase of a home. It sets certain conditions and timelines for the buyer to secure a mortgage loan.

How Long is a Home Financing Contingency?

The duration of a home financing contingency can vary depending on the agreement between the buyer and seller. It is typically a specified period, such as 30 or 45 days, during which the buyer must secure financing. If the buyer is unable to obtain financing within this timeframe, they can terminate the contract without any penalties.

Types of Financing Contingencies - Active vs. Passive

There are two main types of financing contingencies - active and passive. An active financing contingency requires the buyer to actively pursue financing options and submit loan applications. A passive financing contingency, on the other hand, allows the buyer to passively wait for loan approval without actively seeking financing.

How & When to Use Financing Contingencies

Financing contingencies should be used in any real estate transaction where the buyer is relying on a loan to complete the purchase. It is especially important in a competitive market where multiple offers are common. By including a financing contingency, the buyer protects themselves from the risk of being unable to secure financing and losing their earnest money deposit.

Why Would You Not Have a Financing Contingency?

While financing contingencies are generally recommended for buyers, there may be situations where a buyer chooses to waive this contingency. This is more common in situations where the buyer has strong financial resources and is confident in their ability to secure financing without any issues.

Consult With Your Agent and Lender

Prior to making a decision regarding a financing contingency, it is crucial to consult with both your real estate agent and lender. They can provide guidance based on your specific circumstances and help you make an informed decision.

Financing Contingency Sample Clauses

Here are a few examples of financing contingency clauses:

• The Buyer's obligations herein are contingent on the Buyer's obtaining financing to pay the balance on the Purchase Price. The Buyer must present to the Seller a binding commitment for financing on or before [date].
• This Agreement is contingent upon the Buyer obtaining approval for a loan to be secured by a mortgage on the Property, in an amount not to exceed [loan amount].
• If the Buyer is unable to obtain financing within [number of days] days from the date of acceptance, either party may terminate this Agreement, and all earnest money deposited by the Buyer shall be returned.

These are just a few examples, and the specific language and terms of a financing contingency clause may vary depending on the jurisdiction and the agreement between the parties involved.