What is a Mortgage Contingency?


In a home sale agreement, there are often clauses written into the contract called contingencies that can void the sale if they aren’t met.  Usually, this is to protect both sides (homebuyer and seller) during the sale process in case they can’t get their financing together.  They also put in stone what day the official approval needs to be acquired by.  These are known as a mortgage contingency.

If you were smart and got a preapproval before making an offer, you’re ahead of the game on mortgage contingencies.  However, the mortgage company still has to verify all of your mortgage information and the property details before the home sale is complete.  A lot of times, the home purchase agreement is signed after the preapproval but before the final approval, meaning that the contingency is necessary for a case where we may find a problem with your application.

If the mortgage has not been finalized and either party backs out of the sale, there is usually not a penalty.  However, with the contingency clause, the buyer would get the earnest money deposit back without being obligated to buy the home.  The earnest money, or good faith deposit, is money put into an account with the expressed purpose of showing that the buyer is serious about the home purchase.  If the loan is closed and THEN the buyer backs out, the earnest money then goes to the seller.

Mortgage contingencies also will include the lending terms, or the amount and interest rate that the buyer is getting the approval for.  They should have the closing fees on the loan that will come in the purchase.  The lending terms are there to protect the buyers from being forced into a sale that goes south, and letting them back out of an agreement if the loan cannot be secured or if interest rates and the fees of the loan become too high for them to afford.

Call The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, Nashville at (615) 810-8555 or Birmingham, AL at (205)721-7656.  You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you.  Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?

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