When U.S. single-family homes come with hefty price tags, the role of a mortgage contingency becomes absolutely crucial.
Defining a Mortgage Contingency
During a property deal, either party can insert clauses into the purchase and sale agreement that essentially act as safety valves. These provisions give both buyer and seller the option to pull out or revisit the deal’s conditions if certain benchmarks aren’t hit.
Christopher Avallon, broker and owner of Avallon Real Estate Group in Princeton, NJ, explains it plainly: “A mortgage contingency empowers the buyer to ditch the deal if their mortgage application fails to get the green light.”
Think of this clause as a life raft — it stops buyers from being locked into a purchase they simply can’t foot financially.
How These Mortgage Contingencies Function
The nuts and bolts of any property sale are meticulously documented in the purchase agreement.
Avallon adds, “This kind of contingency shields buyers by handing them a lawful escape route from the contract, often allowing them to reclaim their earnest money if the mortgage falls through.”
Usually, a mortgage contingency spells out the precise loan amount the buyer needs approval for and sets a deadline for getting that green light. In addition, it mandates that the buyer puts forth honest effort to secure financing — no scheming your way out by deliberately tanking your loan application. Typically, buyers get about four weeks to lock down their mortgage before this safeguard activates.
Earnest money is part of the deal here. Often, buyers hand over a good-faith deposit when signing the purchase agreement to show they’re serious. But should they bail for flimsy reasons, expect that deposit to vanish into thin air.
Quick Fact:
According to the National Association of Realtors, roughly 80% of homebuyers in the U.S. rely on mortgage financing, making mortgage contingencies a ubiquitous feature in real estate contracts.
Is It Wise to Waive Your Mortgage Contingency?
Sure, contingencies, including those for mortgages, can be waived — but ditching this particular safety net usually isn’t the brightest move.
This clause represents your insurance policy: if your financing falls apart, you have a legal exit. Tossing it aside means stepping into risky territory.
Picture this scenario: You toss down $10,000 as earnest money, apply for a mortgage, but waive the contingency protecting you from loan denial. Should your mortgage not get approved, your options shrink drastically — either scramble to cover the purchase out-of-pocket or face losing your initial deposit. Given that gamble, only waive this clause if you’re absolutely certain of securing financing.
Other Staples in Real Estate Contingencies
Contingencies don’t stop at financing hurdles. Real estate deals often include a variety of protective clauses that cover different bases, such as:
- Home inspection contingency: Buyers frequently include this to ensure the property doesn’t have hidden defects lurking beneath the surface.
- Title contingency: This clause confirms that the seller holds a clean, unencumbered title to the property, which safeguards the buyer from future legal disputes. Including it rarely weakens your offer and is generally a wise move.