Understanding the Financing Contingency

A financing contingency is a clause in a home purchase and sale agreement that expresses that your offer is contingent on being able to secure financing for the house.

What exactly is a Financing Contingency?

The financing contingency communicates to the seller that you are pre-approved for the mortgage; however, you require a certain number of days to go through the underwriting process with the lender. How many days the buyer will need is typically negotiable. Of course, a shorter amount of time is better for the seller - and a more extended amount of time is better for the buyer.

Financing contingencies protect the buyer if the financing gets rejected in that specified amount of time.

Do You Need a Financing Contingency?

If you are confident in your financial situation and have gone through the basic underwriting with the loan officer, you can feel pretty secure in your approval.

Did you know that you are not completely approved until the closing day?

Until the actual day of closing, the bank will call your employer to ensure you still work there; they will ask for your most recent pay stub and bank statements. If anything makes the lender question your financial situation, it is up to the lender's discretion whether they choose to finance you.

If you have a comprehensive understanding of your finances, it's very easy for you to work with your loan officer.

Make sure to give your lender all the necessary documentation in a timely manner. When an agent calls your loan officer, it is imperative they can report having everything they need from you, they see no obstacles, and feel confident in your loan request.

It is not a massive risk if you lose the financing contingency - because the financing contingency only protects you if your financing gets rejected. If you are confident in your finances, the contingency serves no purpose.

Canceling the Contract

Many people are under the impression they can cancel a contract for any reason during the financing contingency. That is not the case. A buyer can only terminate the contract if they fail to secure financing in time.

Understanding Contingencies

For a simple, straightforward understanding of the most common contingencies in real estate, visit our YouTube channel.