What is a mortgage contingency?

A mortgage contingency is a crucial clause in a real estate contract that stipulates the sale of the property is conditional upon the buyer successfully securing a mortgage. This means that if the buyer is unable to obtain financing for their purchase within a specified time frame, they have the right to withdraw from the contract without penalty and receive their earnest money back. This provision protects the buyer by ensuring that they are not locked into a purchase if they cannot secure the necessary funding, which is often essential for home purchases.

Understanding this component of real estate transactions is vital because it highlights the role of financing in the buying process and the protections available to buyers. Without a mortgage contingency, buyers may risk losing their earnest money if they cannot secure a loan, emphasizing the importance of this clause in real estate contracts.