Archive for December 24, 2009

What is a Mortgage Contingency?

December 24, 2009 Leave a comment

A Mortgage Contingency provides  protection to the buyer. It allows the buyer to void the purchase contract without penalty if the buyer is unable to obtain financing on the terms specified in a contract.

For example, the clause may read:

The contract is contingent on the buyer obtaining approval for a 30-year mortgage for $200,000 at no more than 6 percent interest within 60 days. Also, it may specify the type of loan (fixed or variable).

Because this type of clause favors the buyer, It  would be a good idea for the buyer to obtain “Pre-qualification”  from a lender, which assures the seller that the buyer will not use the clause to void the contract unless some extraordinary circumstance arises.

Keep in mind, that the seller may not agree to a Mortgage Contingency and there is not much the buyer can do.  But to not have a Mortgage Contingency, could lead to the buyer having to finance the home with an unfavorable interest rate. The Buyer should always be cautious about signing a purchase contract that does not contain a Mortgage Contingency.