What is a Mortgage Contingency?


what is a mortgage contingency

Navigating the complexities of the real estate market can feel overwhelming, especially when it comes to understanding key components like mortgage contingencies.

What is a Mortgage Contingency?

These vital clauses in a real estate purchase contract protect both buyers and sellers during financing negotiations, ensuring that all parties are legally equipped to proceed with a transaction.

This blog will break down mortgage contingency clauses, their types, benefits, and how you can successfully navigate them in your own home buying or selling journey.

Key Takeaways

What Is A Mortgage Contingency Clause?

A mortgage contingency clause is a condition in the real estate purchase contract that states the homebuyer must obtain acceptable financing before they can proceed with the deal.

Other Types Of Mortgage Contingencies

There are several types of mortgage contingencies that can be included in real estate purchase contracts to protect buyers and sellers. These contingencies address various financing aspects and help ensure a smooth transaction:

  1. Financing Contingency: This contingency allows the buyer to back out of the contract if they are unable to secure acceptable financing within a specified time frame.
  2. Loan Qualification Contingency: This clause requires the buyer to qualify for a mortgage loan or meet specific financial criteria before the contract becomes binding.
  3. Appraisal Contingency: The appraisal contingency protects the buyer by allowing them to cancel the agreement if the property’s appraised value comes in lower than the agreed-upon purchase price.
  4. Inspection Contingency: This clause stipulates that a satisfactory home inspection must be completed, and any issues identified must be addressed prior to closing.
  5. Seller Financing Contingency: In cases where seller financing is being offered, this contingency outlines specific terms, such as interest rates and payment schedules, which must be agreed upon by both parties before proceeding with the transaction.
  6. Earnest Money Deposit (EMD) Contingency: Although not directly tied into mortgage approval, EMD contingencies may require proof of funds or confirmation that an EMD has been paid before proceeding with a sale.
  7. Due Diligence Period Contingency: This provides buyers with a set timeframe to perform certain tasks like obtaining financing, conducting inspections or reviewing important documents before finalizing their purchase decision.

By understanding these various types of mortgage contingencies and incorporating them into your real estate purchase contract, you can minimize risks associated with buying or selling property while ensuring that all parties involved have clear expectations about what needs to happen for a successful transaction.

How To Navigate Mortgage Contingencies

To ensure a successful home purchase, it’s essential for buyers and sellers to understand how to navigate mortgage contingencies – discover the importance of reviewing contingency terms and expert help in negotiating by reading on.

Importance For Buyers And Sellers

Mortgage contingencies play a crucial role for both buyers and sellers in the home buying process. For buyers, these contingencies can offer much-needed protection in case their financial situation changes or if they are unable to secure financing for the property.

On the other hand, sellers benefit from mortgage contingencies by having an increased understanding of the buyer’s financial capabilities before committing to the sale. This minimizes uncertainties and reduces risks associated with potential transaction delays or cancellations due to financing issues.

Additionally, being aware of contingency terms can help sellers negotiate effectively during contract discussions, ensuring that they achieve favorable conditions without jeopardizing the transaction’s success rate.

Reviewing The Contingency Terms

It is essential to review the contingency terms to ensure that they align with your needs and requirements. Here are some factors to consider when reviewing the contingency terms:

  1. Financing Terms: Check the type of financing and loan terms set in the clause, including the down payment, interest rate, and closing costs.
  2. Contingency Period Duration: Determine the length of the contingency period as it impacts how long you have to secure financing or complete any inspections or due diligence.
  3. Earnest Money Deposit: Verify if there is any earnest money deposit required, which is a good faith deposit made by buyers to show their commitment to purchasing the property.
  4. Loan Qualification Requirements: Ensure that you meet all loan qualification requirements mentioned in the clause before proceeding with a mortgage application.
  5. Consequences of Breach: Understand what will happen if either party does not adhere to the contingency terms and how it may affect your contract’s validity.

By reviewing these contingency terms carefully, you can make better-informed decisions during negotiations and protect yourself from potential financial liabilities or risks.

Expert Help For Negotiation

Navigating mortgage contingencies can be a complex task, especially for first-time homebuyers or inexperienced sellers. Luckily, expert help is available to ensure you understand all the terms and conditions of your real estate transaction.

Mortgage professionals and real estate agents can assist in reviewing the contingency terms before signing a contract.

For example, when financing looks questionable during a mortgage contingency, experts may advise securing an alternative source of funding to assure completion of the sale.

Additionally, they may suggest seeking preapproval or prequalification for loans before beginning negotiations with sellers.

Benefits Of Understanding Mortgage Contingencies

Understanding mortgage contingencies can provide better protection and negotiation power, as well as reduce financial risks.

Better Protection And Negotiation Power

Understanding mortgage contingencies can provide better protection and negotiation power to homebuyers. For example, if a buyer includes an inspection contingency in the contract and discovers significant issues during the inspection period, they may have the right to renegotiate or back out of the deal altogether.

Similarly, if a buyer is unable to secure financing during their contingency period, they can walk away without penalty or loss of their earnest money deposit.

In addition to added security for buyers, understanding mortgage contingencies also benefits sellers by creating a transparent and fair transaction process that protects all parties involved.

For instance, appraisal and inspection contingencies allow buyers to ensure that they are purchasing a property at its correct value while allowing sellers to address any necessary repairs before closing.

Reduced Financial Risks

Understanding mortgage contingencies can help to reduce financial risks for homebuyers. With a mortgage contingency clause, buyers have the right to cancel the contract and receive their earnest money deposit back if they are unable to secure acceptable financing within the specified time frame.

In addition, understanding real estate contract contingencies can give buyers leverage in negotiations with sellers. By having knowledgeable representation who is able to negotiate favorable terms for these contingencies, buyers can protect themselves from unforeseen financial risks and have greater control over their investment.

Another Option: Sell to a Professional Home Buyer

Mortgage contingencies, and all contingencies in general, can be avoided by selling to a professional home buyer. They commonly buy homes with cash, which removes the need for common contingencies such as mortgage and appraisal. That’s just one of the many benefits that come with selling your home for cash.


In conclusion, understanding mortgage contingencies is crucial when it comes to buying or selling a home. As a buyer, you want to be certain that you can obtain financing for your dream home before proceeding with the purchase.

As a seller, you need to protect yourself from a deal falling through due to financing issues. By reviewing and negotiating the contingency terms in your real estate contract, you’ll have better protection and negotiation power.

Working with an expert can help ensure success in navigating these sometimes complex clauses.


What is a mortgage contingency?

A mortgage contingency refers to a clause in a real estate contract that stipulates that the sale of the property is dependent on the buyer securing financing from a lender.

How does a mortgage contingency protect me as a homebuyer?

A mortgage contingency protects you by ensuring that you are not legally obligated to purchase the property if you cannot obtain financing. If you are unable to secure funding, the contingency allows you to back out of the sale without penalty and with your earnest money deposit returned.

Can I waive my mortgage contingency?

Yes, it is possible for buyers to waive their mortgage contingencies so long as they meet specific criteria set forth in their contract agreement. However, waiving this protection can be risky and may result in potential legal and financial consequences if anything goes wrong during your transaction.

When should I begin looking for financing options when buying a home?

As soon as possible! It’s important to start exploring potential lenders and loan products early on so that you can have an idea of what type of loan will work best for your situation before making offers on any properties. Working with an experienced lender can help take some stress off the process while increasing chances at success down road when both parties come together at closing table with all necessary paperwork & financing commitments prepared ahead time.