2 minutes read
A financing contingency lets buyers cancel and recover earnest money if they lack financing.
KB
07/26/2025
Buying a home is one of the biggest financial commitments most people will ever make. That’s why it’s crucial to protect yourself throughout the process and one of the most powerful tools at your disposal is a financing contingency.
In this guide, we’ll unpack what a financing contingency is, how it works, why it matters, and what you need to know to use it wisely in today’s housing market.
A financing contingency (also called a mortgage contingency) is a clause in a real estate contract that protects a homebuyer if they’re unable to secure financing. Simply put, it allows the buyer to back out of a contract without penalty and get their earnest money deposit back if their mortgage falls through.
This clause is especially vital for buyers relying on a loan or mortgage to finance the purchase. It serves as a safety net, offering legal and financial protection during a potentially turbulent loan approval process.
When a buyer submits an offer on a home, they can include a financing contingency in the purchase agreement. This clause typically outlines:
If the buyer fails to secure a loan by the agreed-upon deadline, the contract becomes void, and the buyer is entitled to a refund of their earnest money.
Imagine you’re buying a home in Seattle and have been pre-approved for a mortgage. You include a financing contingency in your offer. But just before closing, your lender declines the final approval due to a low appraisal. Because of your contingency, you can walk away from the deal without losing your deposit.
In the current 2025 market, where interest rates are fluctuating, lender requirements are tightening, and property appraisals are more scrutinized, a financing contingency is more than a formality it’s a must-have.
Buyers who waive the financing contingency often to compete in a hot market risk losing thousands in earnest money if financing fails. Worse, they could be legally obligated to purchase the home without a loan in place.
Let’s break it down:
Even with a contingency, if your financing fails due to your own actions (e.g., new debt, job loss, or dishonesty on your loan application), the seller may challenge your right to a refund.
Pro Tip: Stay financially stable during the homebuying process. Don’t open new credit cards or make large purchases until after closing.
Most contracts include a contingency period ranging from 10 to 21 days. During this time, buyers must:
Missing this deadline without an extension can void the protection of your contingency.
In competitive markets, some buyers are tempted to waive contingencies to make their offer more appealing. But this is a high-risk move.
Only consider waiving your financing contingency if:
Always consult your agent or legal advisor before removing this protection.
There are several types of real estate contingencies. Understanding the differences can help you build a more flexible contract. Each contingency adds a layer of protection and negotiation power.
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Visual learners? Watch our breakdown of how financing contingencies protect you in a real estate deal and what happens when you waive one.
Want to learn more? Our free e-guide covers everything from pre-approval to final closing plus bonus tips on how to negotiate like a pro with contingencies.
If you’re planning to buy a home in 2025, the financing contingency is a non-negotiable safeguard unless you can afford to gamble thousands of dollars.
From unpredictable loan approvals to shifting interest rates, real estate deals can fall apart at any moment. Including a financing contingency ensures that if financing becomes a problem, it doesn’t become your problem.
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