A financing contingency is a clause in a purchase contract that makes the sale conditional on the buyer obtaining mortgage financing—at an agreed interest rate, loan type and amount—within a specified timeframe. If the buyer can’t secure a qualifying loan, they can cancel the contract without penalty and have their earnest money deposit refunded.
Buyers include it to protect themselves from being forced into a purchase they can’t afford if financing falls through. Sellers accept it because it signals that the buyer has been pre-qualified by a lender, even though it adds uncertainty until loan approval.
Unlike an inspection contingency, which covers property condition, a financing contingency covers only the buyer’s ability to secure a mortgage. An appraisal contingency, by contrast, addresses the property’s value relative to the loan amount.
New buyers often rely heavily on financing. A financing contingency ensures their earnest money deposit isn’t forfeited if the lender denies the loan.
Seasoned buyers use contingencies to limit exposure to rising rates or appraisal shortfalls, preserving capital for other deals.
Real estate professionals need to draft and track deadlines precisely to protect clients and avoid disputes over missed financing contingency dates.
Buyers using special programs (FHA, VA, USDA) must tailor financing contingencies to specific underwriting requirements and government appraisal standards.
If the lender denies the loan or terms exceed agreed caps (interest rate, loan amount), the buyer can exit and recover their deposit.
Sellers may request proof of denial and can agree or deny an extension request. If no extension is granted and the deadline passes, the seller can resume marketing the property.
Earnest money is returned if the contingency is properly invoked by the deadline with required documentation. It’s forfeited if the buyer waives the clause or misses the financing deadline.
This is the date by which the buyer must receive a formal loan commitment. Common windows range from 17 to 30 days after contract acceptance.
Lenders typically order an appraisal and complete underwriting within the same contingency period. Both must finish before removal.
Buyers submit a written extension request before the deadline. Sellers may request additional proof of progress, like updated loan status or appraisal scheduling confirmation.
Include a lender’s pre-approval letter to demonstrate your ability to obtain financing and strengthen your offer.
Once escrow opens, the lender orders an appraisal. Buyers supply required documents—income verification, asset statements—promptly to avoid delays.
After loan approval, the buyer signs a financing contingency removal form. Waiving the contingency upfront can make offers more competitive but increases risk.
Define the acceptable loan program (fixed vs. adjustable), maximum interest rate and minimum down payment to control your borrowing costs.
Shortening the contingency window appeals to sellers in strong markets. Waiving it outright may win bidding wars but exposes buyers to deposit forfeiture if financing fails.
Obtain a strong pre-approval, work with a responsive lender and consider a rate lock or bridge financing to satisfy strict seller timelines.
The buyer meets the deadline, removes the contingency and moves forward to closing with confidence.
The appraisal is $10,000 below the contract price. Buyer renegotiates the purchase price or covers the gap in cash; otherwise they invoke the contingency.
With denial proof, the buyer cancels the contract before the deadline and receives their earnest money back.
Buyer waives at offer to compete. If financing fails, they risk losing their deposit and potential legal claims by the seller.
It protects you from being obligated to buy if your loan is denied or comes with terms you can’t accept.
Typically 17–30 days. Your contract will specify the exact “financing contingency date.”
Yes, if you invoke the contingency by the deadline and provide required lender denial documentation.
Yes. Buyers and sellers agree on the contingency window, interest-rate caps and loan criteria during contract negotiations.
A lender’s loan commitment or closing disclosure and signed contingency removal form are standard requirements.
Both steps must complete within the contingency period. An unfavorable appraisal or underwriting condition can trigger cancellation rights.
Yes. You risk losing your deposit if financing falls through, so only waive with strong pre-approval and cash reserves.
“Buyer’s obligation is contingent upon Buyer obtaining written loan commitment for a conventional fixed-rate mortgage not exceeding 4.5% interest, minimum 20% down, on or before 21 days after acceptance.”
Work with your lender to secure a letter that specifies loan type, amount and expiration date to strengthen your offer.
Order the appraisal immediately after contract acceptance to allow time for renegotiation or extensions.
Maintain open lines of communication so you can address conditions quickly and prevent last-minute financing failures.
Omitting a financing contingency risks losing deposits or facing breach-of-contract claims if your loan falls through.
Shorten or adjust your contingency to stay competitive while preserving essential safeguards.
Consult your agent or attorney to ensure your financing contingency aligns with your risk tolerance and timeline.
