The home buyer and seller must agree upon the conditions outlined in the mortgage contingency. It should include details about the lending terms described below.
Mortgage Contingency Deadline
As mentioned, the mortgage contingency period mandates how long the buyer has to secure the appropriate loan, and the deadline is typically set for between 30 – 60 days. Both parties must agree to the timeframe.
In some situations, buyers and sellers may opt to add a mortgage contingency extension date in the purchase agreement. This lending term includes provisions for stretching the mortgage contingency period if the buyer is unable to obtain the appropriate loan before the deadline. However, the seller isn’t obligated to grant a contingency extension, and they can walk away from the sale if the contingency expires.
Type Of Mortgages
Most mortgage contingency clauses specify the type of mortgage the buyer needs to secure. After reviewing loan options, both parties must settle on the specific mortgage loan the buyer will need to move forward in the closing process.
Amount Of Money Needed
One of the most important terms of the mortgage contingency clause is the exact loan amount the buyer must be approved for. This condition acts as a secondary protection for the buyer. If they’re approved for a mortgage but not the amount listed in the contract, they can cancel the sale without consequences.
Maximum Interest Rate
Buyers should let sellers know what interest rate they’re comfortable paying monthly. This way, if their home loan is approved with a higher rate than they wanted, the mortgage contingency can allow them to back out of the sale.
Closing Or Origination Fees
Before signing the purchase agreement, it’s important to establish the closing costs and fees that the buyer will be obligated to pay to secure the loan. Among other fees, the mortgage lender typically charges origination fees, which include the cost of processing, underwriting and funding the loan. It’s helpful for the buyer to factor these additional fees into their home-buying budget.
FAQs
The length of contingency is on a case-by-case basis and will depend on what type of contingencies are in the offer. The contingent period usually lasts anywhere from 30 to 60 days. If you have a mortgage contingency, the buyer's due date is usually about a week before closing.
What is the purpose of a mortgage contingency clause? ›
A mortgage contingency is a clause in real estate transactions that gives home buyers a timeframe to secure a mortgage loan for a home. If the loan can't be secured, the buyer can walk away without legal repercussions and have their earnest money deposit returned.
What happens when a mortgage contingency expires? ›
If not protected by the contingency, and you do not close on time, you could be in breach of contract, lose your earnest money deposit, and the seller could come after you for additional damages. For more information contact the FOCUS on NoVA Real Estate team today.
How does a contingency work when buying a house? ›
A contingency is a clause that buyers include when making an offer on a home that allows them to back out of buying the house if the terms of the clause aren't met. Without a contingency in place, buyers risk losing their earnest money deposit if they decide not to purchase the home after making an offer.
Can a seller accept another offer while contingent? ›
Contingency with a kick-out clause
That means the seller can continue to show the home and accept offers during the sale contingency period. If the seller gets a better offer, they'll allow the original buyer 72 hours to drop the sale contingency and proceed with the deal.
How often do contingent offers fall through? ›
Here's some good news: Most home sales reach closing, even with contingencies attached. A survey from the National Association of REALTORS® found that only 5% of home sale contracts in the months of June, July and August of 2022 were terminated.
What is an example of a mortgage contingency? ›
Contingencies can include details such as the time frame (for example, “the buyer has 14 days to inspect the property”) and specific terms (such as, “the buyer has 21 days to secure a 30-year conventional loan for 80% of the purchase price at an interest rate no higher than 4.5%”).
Will I lose my deposit if I am denied a mortgage? ›
If the buyer fails to get approval for a mortgage, the buyer can terminate the contract and remain entitled to their earnest money deposit, basically holding the bank responsible for the failed process.
What happens if the buyer does not remove contingencies? ›
If the buyer doesn't sign a release of contingencies in the time stated in the contract, the seller can cancel the contract. The seller must typically deliver a "notice to perform" to the buyer. It gives them 48 to 72 hours to either act on or release a contingency.
Who benefits from a contingency in real estate? ›
Considerations for Buyers
Most buyers need to sell their existing home to purchase a new one, especially when "trading up" to a more expensive house. A home sale contingency gives buyers the time they need to sell and close before committing to a new home.
Contingencies protect the buyer from losing their earnest money deposit or facing legal consequences if they can't complete the transaction. However, in a competitive market, some buyers may decide to waive some or all of their contingencies to make their offer more attractive to the seller.
What happens if you don't meet a deadline on a contingency? ›
Contingencies and earnest money
Contingencies are also tied to the earnest money, or “good faith deposit,” a buyer often puts down when going under contract on a home. If a contingency isn't met, the buyer usually gets that deposit back. “This earnest money is held in escrow by a third party,” Noker says.
Can a buyer back out of a contingent offer? ›
For example, it's perfectly legal for a buyer to back out of a real estate agreement if the contract included contingencies that were not met. Contingencies outline specific conditions that must be fulfilled in order for the deal to be closed.
Why don't sellers like contingent offers? ›
Since contingency offers are conditional upon several factors, such as financing and inspections, they can delay or jeopardize the home's sale. Sellers can worry that these stipulations could lead to a prolonged sale timeline or the sale not following through if conditions are not met.
Why do houses stay contingent for so long? ›
The property does not change to sold status until closing, so the contingency protects the buyer if the sale falls through for any reason. This type of contingency does not allow the seller to accept other offers on the property for a certain period because they have contractual obligations.
How long does it take to go from contingent to pending? ›
It all depends on how long the escrow process is and the agreed upon contingent time frame, but you can (usually) expect a house to go from contingent to pending in about nine days.
How long is a typical appraisal contingency? ›
Real Estate Contingency Period
If there is an offer with contingencies, the buyer and seller generally have 30-60 days to ensure the contingencies are met.
Should I accept a contingent offer on my house? ›
If you spot an offer that's contingent upon the buyer selling their property, you should seriously consider passing it up. If you're reliant on two buyers getting financing and getting to closing, the chances are just too high your sale will be derailed.
