What is a mortgage contingency?
This common provision allows the buyer a certain period of time to obtain a commitment for financing at a specified interest rate for a certain amount of money. The clause might read, for example, that the contract is contingent on the buyer obtaining approval for a 30-year mortgage for $300,000 at no more than six percent interest within 30 days. For additional protection, the buyer might specify the type of loan he or she prefers, for example fixed or variable. A mortgage-contingency rider provides critical protection to the buyer. For example, it allows the buyer to void the purchase contract without penalty in those cases in which the buyer is unable to obtain financing on the terms specified in the contract after making a reasonable or good faith effort to do so within the time provided. Because this type of clause favors the buyer, some real estate agents suggest that the buyer obtain “pre-qualification” from a lender, which gives the seller a degree of confidence that the buyer
