Financing Contingency in home purchase contracts
A financing contingency (also called a “mortgage contingency” or “loan contingency”) gives the buyer time to apply for and obtain financing for the purchase of the property. This provides important protection for the buyer, who can back out from the contract and reclaim their earnest money in the event they are unable to secure financing from a bank, mortgage broker, or another type of lending.
This clause provides the buyer with protection from potential legal ramifications in case the deal fails to close.
The financing contingency contains clauses that specify the date of the completion of the transaction. The contingency also highlights expected instances and the resultant events. For example, if the buyer is unable to secure funding in time, the contingency requires that the held earnest money be refunded to the buyer with no deductions.