Homebuying 101: Financing Contingencies


Entering into a home purchase and sales agreement is more than committing to a sales price. The agreement also outlines the steps needed to close on your new home and show off your keys.

As part of the contract, there are often clauses or contingencies on what will happen if certain conditions are not met. Two of the most common contingencies are an inspection and financing contingency.

An inspection contingency (sometimes called a “due diligence contingency”) allows you an opportunity to have the home inspected by a professional during a set time period. Typically, the inspection must be completed 5-7 days after the contract is accepted by both buyer and seller.

This contingency protects you in the event that you need to cancel the purchase and sales agreement due to findings in the inspection report. It can also offer you a chance to negotiate repairs or concessions. If you need to cancel the contract or the seller is unwilling to negotiate you will typically receive your earnest money deposit back.

Please remember, a home inspection is different than an appraisal. Home inspections examine the conditions of the interior and exterior of a home while an appraisal report is to determine the value of a home based on certain criteria. Check out our Homebuying 101 post on appraisals for more information.

A financing contingency is a clause that makes the purchase offer dependent on receiving financing from the lender. There can be many different stipulations, but the overall objective is to protect you and possibly return your earnest money deposit if you need to cancel the contract due to financing from the lender not being approved.

In competitive markets, you may see buyers waive certain contingencies in order to make their offer more attractive to a seller. Always check with a real estate professional or mortgage loan officer before waiving any contingencies so they can help determine if it’s the best decision for your situation.

Want to know more about making your offer stand out or how to begin the journey home? Contact one of our home loan experts today to get started!

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