What is a Mortgage Clause?
Mortgage Acuity
Mortgage Acuity
Published on May 5, 2022
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What is a Mortgage Clause?

A financing contingency (aka mortgage contingency) is a clause in the contract of sale that gives buyers time to apply for and obtain financing. This clause can be used when a buyer needs to wait for approval from their lender before they can close on the purchase.

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This clause in your purchase contract, accepted offer or real estate contract to buy house protects you as the home buyer. It provides you with an exit should you not be approved for the mortgage.

If you have a financing or mortgage contingency in place, and the lender cannot come through for you, you can back out of the contract and get your deposit back.

Usually the financing contingency will say the number of days you have to apply and secure the financing to buy the home. These may be different.

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An example is you will have 5 days from the full execution of the contract to apply for a mortgage and 20 days to get an approval. If this time passes without you exercising this contingency, you may be waiving it. Be aware of the commitments you make when signing a contract to buy a home. If you waive this contingency, you are obligated to buy the home with or without financing. And if you cannot perform under the terms of the contract, your deposit is at risk.

The buyer should have already obtained their pre-approval letter or loan commitment before they enter into an agreement with the seller. The financing contingency will give them time to complete this process and close on their new home without any delays.

If you're using an All-Cash offer, then the financing contingency is moot as you're not purchasing a home with a mortgage loan. The financing contingency protects your earnest money deposit (EMD) so that if you cannot secure the necessary lending to buy the home during the contingency period, the sellers will return your EMD to you so you can go on with your life.

Without the mortgage contingency, if you don't secure financing to buy the home, you will need to fight to get your deposit back.

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