What is a Mortgage Contingency Clause and Why is it Important?

Q: Can the seller refuse to accept my mortgage contingency?

Yes, sellers can choose not to accept offers with a mortgage contingency clause, especially in competitive markets.

Q: Is a mortgage contingency clause required?

No, it is not required, but it is highly recommended for buyers who need financing to purchase a home.

Definition & Meaning

A mortgage contingency clause is a provision in a real estate purchase agreement that makes the buyer's obligation to complete the transaction dependent on their ability to secure a mortgage loan. If the buyer cannot obtain financing within a specified timeframe, they have the right to cancel the agreement without penalty. This clause protects the buyer by ensuring that they are not obligated to proceed with the purchase if they cannot secure the necessary funds.

Table of content

Legal Use & context

This clause is commonly used in residential real estate transactions. It is particularly relevant in the context of real estate law, where buyers and sellers enter into contracts. The mortgage contingency clause allows buyers to negotiate terms that align with their financial capabilities. Users can manage these agreements by utilizing legal templates available through services like US Legal Forms, which provide professionally drafted documents suitable for their needs.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A buyer enters into a purchase agreement for a home and includes a mortgage contingency clause that allows them 30 days to secure financing. If they are unable to obtain a mortgage within that period, they can withdraw from the agreement without losing their earnest money.

Example 2: A buyer finds a property they wish to purchase but needs to apply for a mortgage. They include a mortgage contingency clause in the contract, which stipulates that if they do not receive loan approval within 45 days, they can cancel the purchase without penalty. (hypothetical example)

State-by-state differences

State	Variation
California	Commonly includes specific timelines and conditions for loan approval.
New York	Often requires additional disclosures regarding financing options.
Texas	May have stricter regulations on the terms of the contingency clause.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition
Financing Contingency	A broader term that includes any conditions related to securing financing, not limited to mortgages.
Inspection Contingency	A clause allowing buyers to cancel the agreement based on the results of a property inspection.
Appraisal Contingency	A clause that lets buyers withdraw if the property appraisal is below the purchase price.

Common misunderstandings

What to do if this term applies to you

If you are a buyer and this term applies to your situation, make sure to include a mortgage contingency clause in your purchase agreement. Clearly define the timeframe and conditions for securing financing. If you need assistance, consider using legal templates from US Legal Forms to create a suitable agreement. If your situation is complex, it may be wise to consult a legal professional for personalized advice.

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Quick facts

Typical timeframe: 30 to 60 days to secure financing.
Jurisdiction: Primarily used in residential real estate transactions.
Possible penalties: Loss of earnest money if the buyer cancels without a valid reason.

Key takeaways

Frequently asked questions

What happens if I can't get a mortgage?

If you cannot secure a mortgage within the specified timeframe, you can cancel the agreement without penalty, provided the mortgage contingency clause is included in your contract.