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Mortgage Contingencies & Home Buying


By Pete Chaison

By now most of you have heard of the commonly used real estate phrases: due diligence and the other is contingency.  In this article we are going to talk about and explain mortgage contingencies.  Contingency clauses are built in to the purchase and sale agreement and are in place to take away some of the uncertainty when buying a home.  These clauses detail out certain conditions that must be met before closing on a home. 

In the case of a mortgage or financing contingency, it provides the buyer with added security, stating that a buyer will try to obtain a particular type of mortgage.  These types can be either conventional (Fannie or Freddie) VA or Veterans, or FHA or USDA  The contingency stipulates the buyer will be approved for specific loan type at or below a certain interest rate, also within a given time before the home can be closed.  If the buyer is unable to secure this loan with the stated terms and guidelines, he/she can back out of the transaction with the earnest money held in escrow to be returned.  A buyer’s pre approval letter from a reputable mortgage broker always accompanies contracts for a home purchase.


Mortgage contingencies also protect the seller, as it is the buyer’s responsibility to obtain a mortgage for the specific property.  If a buyer cannot secure the loan, it is the responsibility of the buyer and his/her agent to notify the seller in writing.  In some cases both parties agree to a mortgage financing contingency extension.  The deadline for the contingency is typically set weeks ahead of the scheduled closing date to also protect the seller.  If a buyer does not fulfill their obligation to secure financing or notify the seller that he has been denied, the seller has the right to keep the earnest money as a penalty to the buyer and for keeping the house off the market as it would be listed as “contingent” on the MLS system.

Appraisals contingencies go hand-in-hand with the mortgage contingency.  In order for a financial institution to lend money for any real estate the property, it must appraise at a price of no less than the contract price. If the appraisal does come in lower than the contract price, the seller has the option to reduce the price of the property to meet the appraised price. If the seller does not agree to this reduction, the purchaser may void the contract and receive his/her escrow money back.  In some cases the buyer will supplement the purchase and make the difference up with cash if he still wishes to purchase the house.  The seller, if agreed upon by the buyer, also can ask for an additional appraisal or a desk review by another appraiser at the seller’s expense. 

There are other contingencies which that come into play on a real estate transaction.  I will write about these in next week’s article.  The language in all contingencies is very important to both sides of the transaction.  As usual, as I suggest in every article which I write, it is extremely important to use a local, licensed and reputable REALTOR.  Real estate transactions can be complicated and by using a REALTOR you can avoid many costly mistakes and on occasion it can make a huge impact on whether or not the transaction is closed on time or even closed.

Pete Chaison is co owner of Savannah List for Less and can be reached at 912.313.2759 or


Written by: Pete Chaison
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