When you’re buying a house, there are a lot of unknowns—and once you’ve bought a home, you’re committed, usually for years. Contingencies clauses in your home purchase contract might help take away some of the uncertainty of buying a home by detailing conditions that must be met before closing will take place.
How mortgage contingencies protect buyers
One very common contingency is a mortgage contingency. A mortgage contingency gives buyers added security during the home-buying process; it states that a buyer will try to get a particular kind of mortgage (traditional, Veterans Affairs or Federal Housing Administration) at or below a certain interest rate for a set amount of the purchase price (generally 80 percent) by a specific date before closing.
If the buyer is unable to secure a loan at the stated terms, he can back out of the contract, and the earnest money deposit returns to him.
Written By: Tasha Schroeder. If you would like to continue reading, click here.