Understanding the Finance Contingency: What Buyers Need to Know

The finance contingency is a key safeguard for homebuyers, ensuring you’re not locked into a purchase if your mortgage falls through. But what exactly happens during this period? Here’s a friendly, step-by-step look at what buyers can expect from the finance contingency—and why it matters.

1. What is the Finance Contingency?

When you make an offer on a home, you can include a finance contingency. This clause gives you a set amount of time to secure a mortgage. If you’re unable to get final loan approval, you can back out of the deal without losing your earnest money deposit.

2. Applying for Your Mortgage

Once your offer is accepted, you’ll move quickly to submit your full mortgage application. This involves providing documents like tax returns, pay stubs, bank statements, and details about your debts and assets. Your lender will review everything to determine if you qualify for the loan.

3. The Lender’s Review

Your lender will process your application, order an appraisal, and verify your financial information. They’ll check your credit, employment, and the property’s value to make sure everything lines up. This step can take a few weeks, so stay in close contact with your lender and respond promptly to any requests.

4. Final Loan Approval or Denial

If everything checks out, you’ll get a clear-to-close from your lender—meaning you’re ready to finalize the purchase. If there’s a problem (like a low appraisal or a change in your financial situation), the contingency allows you to renegotiate or walk away without penalty.

5. Removing the Contingency

Once your loan is approved, you’ll formally remove the finance contingency. At this point, your earnest money becomes non-refundable, and you’re committed to closing on the home.

The finance contingency is your safety net during the homebuying process. It gives you time to secure financing and protects your investment if things don’t go as planned. Work closely with your lender and real estate agent, and you’ll move through this step with confidence!