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What does mortgage contingency mean?

Home sale contract with coningenciesYou've located the perfect house and are ready to make an offer as quickly as possible. You have a pre-approval letter from a lender as well as a proof of funds letter. The real estate agent opens the sales contract and begins to fill it out. In addition to the offer price, you'll need to include a few stipulations in the sales contract called contingencies.

A contingency is a condition that prevents the transaction from proceeding unless the contingency is met. The most common contingency is a mortgage contingency.

A mortgage contingency states that you are not bound to complete the sale if you are unable to obtain a mortgage for the property. The mortgage contingency will include the type of loan (FHA, USDA, conventional mortgage, etc.), the maximum loan amount, the maximum interest rate, and any charges or fees related with the mortgage. If the seller accepts the buyer's offer, the buyer will be required to file a loan application within a certain number of days.

The following are some of the additional contingency clauses:

Home Inspection Contingency

As part of the home inspection contingency, the buyer has the right to have the home inspected by a professional home inspector. The buyer stipulates in the sales contract that the house inspection will be completed within a specified length of time.

Appraisal contingency

The appraisal contingency informs the seller that the home must appraise for at least the same amount as the offer price.

Title contingency

The seller must be able to convey a clear title that is free of liens and encumbrances to the buyer.

Home sale contingency

If you can't sell your current home before closing on the new one, the house sale contingency permits you to get out of the contract.

Pest infestation contingency

Termites, wood-boring insects, and other pests can be a problem. Under the pest contingency, the home buyer has the right to have the property inspected for any vermin or rodent infestation.

Frequently Asked Questions about Mortgage Contingencies

Q. What does it mean to "waive mortgage contingency"?
A. If the mortgage contingency is removed, the home buyer will not be entitled to terminate the sales contract if financing is not available.

Q. What is a mortgage contingency date?
A. Dates are very important with real estate contracts. If you cannot meet the date(s) in the sales contract, you could void the protection that a contingency provides; including the mortgage contingency.

Q. What is a home sale contingency?
A. A home sale contingency tells the seller that you must sell (and close on) your present home before closing on the seller's home.

Unfortunately, if another buyer comes along or your home does not sell quickly enough, the seller will want their own escape clause.

Q. What does "waiving the mortgage contingency" mean?
A. By waiving the mortgage contingency, you're willing to buy the house without a loan. A mortgage contingency protects you if you can't acquire a loan.