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What are Mortgage Contingencies—And Why Homebuyers Need Them

Buying a home is exciting, but don’t overlook the importance of contingencies when you’re putting your offer together. These powerful, little clauses can provide you with financial peace of mind.

“Contingencies in a loan contract are going to protect you as a buyer,” said Lisa Daniels, director of sales training at New American Funding.

Some of the more common contingencies include loan contingencies, also known as finance contingencies. Generally, this means if you are unable to qualify for a mortgage, you can back out of the deal.

This allows you to get back the earnest money you provided to the seller to signal you were serious about purchasing the home.

Many buyers also use an appraisal contingency. This means if the home doesn’t appraise for as much as you offered, you can renegotiate the sale price. 

Similarly, many buyers insist on a home inspection before purchasing the property to ensure there aren’t any pricey problems.

And buyers who are also selling a home often add a home sale contingency. If their existing home doesn’t sell, they can cancel the contract on the new home and get their earnest money deposit returned.

“Before you enter into a contract to buy a home, you want to make sure that the contract includes things that protect you, like loan contingencies,” said Daniels.

Lisa Daniels NMLS # 37860