Financing Contingency
Definition
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
Example
A buyer includes a financing contingency requiring mortgage approval for a $280,000 conventional loan at no more than 7% interest within 30 days. The buyer's lender denies the application due to insufficient income. Because the financing contingency is in place, the buyer cancels the contract and receives a full refund of the earnest money deposit.
Exam Tip
Remember that the financing contingency deadline is separate from the closing date — the buyer must obtain loan commitment by the contingency deadline, not by closing. Exam questions may ask what happens if a buyer waives the financing contingency and then cannot get a loan — the buyer is in breach and may lose the earnest money.
Related Contracts Terms
Purchase Agreement / Sales Contract
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and Acceptance
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
Counteroffer
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest Money Deposit
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Contingencies
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Frequently Asked Questions
Test Your Contracts Knowledge
Practice with exam-style questions to make sure you can apply Financing Contingency and other contracts concepts.