When you’re buying a home, you will probably encounter the term “loan contingency.” But what is a loan contingency, and why does it matter to you as the buyer?
What is a Loan Contingency?
Most real estate purchase contracts contain a loan contingency, which allows the buyer a certain number of days in which to obtain financing to buy the home. If the buyer doesn’t get financing in that time frame, he or she can back out of the real estate transaction with his or her earnest money intact. It’s not necessarily good for sellers, but it does protect buyers in the event that they can’t get the money to buy the house.
The time period can range from a week to a month, but sometimes the contingency allows for longer periods of time.
What if the Loan Contingency Expires?
The buyer and seller can negotiate to extend the contingency period if the mortgage is “close but no cigar.”
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