Buying a home is a major decision, and most buyers need a loan to make it happen. That’s where the mortgage contingency comes in—a clause in your purchase agreement that can protect you if your financing falls through.
What Is a Mortgage Contingency?
A mortgage contingency gives you the right to cancel the contract if you're unable to get approved for a mortgage. It protects your earnest money deposit and gives you peace of mind as you work through the loan process.
If your financing is denied and you included this clause, you can back out of the deal without losing your deposit. It’s an important safeguard that helps reduce financial risk during a home purchase.
Why Is It Important?
- Protects Your Deposit: If your loan application is denied, you won’t lose your earnest money.
- Keeps Transactions On Track: It creates a clear timeline for financing approval, which helps both buyers and sellers stay on schedule.
- Adapts to Market Conditions: In fast-moving markets, buyers sometimes waive contingencies to make offers more attractive. But this increases risk.
Recent data from the National Association of Realtors shows that about 76% of home purchase contracts included a mortgage contingency last year. In slower markets, that number can go as high as 90%. But in hotter markets, it might drop to 50% as buyers try to stand out.
What Happens If You Waive It?
Skipping the mortgage contingency may seem bold, but it comes with serious risks. If your loan is denied, you could lose thousands of dollars—or even face legal issues. For example, if you put down $10,000 as earnest money on a $300,000 home and your loan doesn’t come through, you may not get that money back.
Customizing Your Contingency
This clause isn’t one-size-fits-all. You can adjust the terms to reflect:
- The type of loan you’re applying for (conventional, FHA, VA, etc.)
- The interest rate range you’re comfortable with
- The minimum down payment you’re planning to make
Bottom Line
A mortgage contingency is a smart way to protect your finances and reduce risk when buying a home. It helps you move forward with more confidence and can be a deciding factor in keeping your deal on track.
Now Is a Great Time to Buy
With interest rates showing signs of improvement and more homes hitting the market, it’s a smart time to consider your next move. Understanding the mortgage contingency is a key part of making a strong, informed offer.
Ready to explore your home financing options? Contact me today to get pre-approved and protect your purchase with the right strategy.