Financing Contingencies

A financing contingency, sometimes called a mortgage contingency, is a clause in a purchase contract that allows a buyer to cancel the deal and typically recover their earnest money if they are unable to obtain mortgage financing within an agreed timeframe.

Why This Contingency Exists

Most buyers submit an offer based on a preapproval, which is an early estimate from a lender, not a final guarantee. Between offer acceptance and closing, the lender still needs to complete a full underwriting review, including verifying income, assets, credit, and the property itself. If something changes or an issue arises during that review and the loan cannot be finalized, the financing contingency protects the buyer from losing their earnest money or being forced to complete a cash purchase they cannot afford.

Typical Structure and Deadlines

The contingency usually specifies a number of days from contract acceptance by which the buyer must either secure loan approval or notify the seller they cannot obtain financing. If that deadline passes without the buyer canceling or requesting an extension, the contingency may be considered satisfied or waived, depending on the exact contract language.

What Can Trigger a Financing Fall-Through

Financing can fall through for various reasons, such as a change in the buyer's employment or income, new debt taken on during the process, issues discovered during underwriting, or the property failing to meet loan program requirements. This is one reason lenders and agents advise buyers not to make large purchases or open new credit accounts while a purchase is in progress.

Waiving the Contingency

In highly competitive markets, some buyers choose to waive the financing contingency to make their offer more appealing to sellers, since it reduces the seller's risk of the deal collapsing. This is a significant risk, because if financing does not come through after waiving the contingency, the buyer could lose their earnest money or face other consequences specified in the contract.

Coordinating With Your Lender

Because the contingency deadline is a firm date in the contract, staying in close communication with the lender throughout underwriting helps ensure any issues are caught with enough time to act before the deadline passes.

The financing contingency is one of the most important protections for buyers using a mortgage, giving them a defined exit if their loan cannot be completed through no fault of their own, while still holding them accountable to a clear timeline.