A financing condition is a clause that is included in home purchase or sale agreement. It states that you are only allowed to offer to finance if the house is approved for financing. Buyers use this clause to set a time frame for applying for a mortgage or closing a loan. Usually, buyers will list the type and amount of loan they are applying for, their downpayment amount, the term of that loan, and the interest rate.

What's The Purpose Of A Financing Contingency, And How Do You Use It?

A financing contingency is a protection for the buyer in case they are not approved for a loan. Although a financing contingency may be specified in terms of stipulations, the goal is to ensure that the buyer isn't penalized for not obtaining financing and completing the transaction. Most buyer-initiated financing conditions will state that the buyer receives their earnest money back if you are not approved for the loan.

What Is Earnest Money?

To show that they are serious about the offer, most buyers will pay earnest money. This usually comes in the form of a check and is typically 1 to 5 percent of your sale price. The earnest money check is kept in escrow, sometimes by the title company and real estate agent. It is then applied to the downpayment for the loan. Financing conditions typically stipulate that the buyer's earnest funds will be refunded if they cannot obtain financing.

Why Would You Not Have A Financing Contingency?

A seller will choose the offer with the highest dollar amount, the fewest conditions, and stipulations in a competitive market. Multiple contingencies are required when a buyer offers to buy a house. These include appraisals, financing, and so on. To beat their competitors, some people waive their right to ask for financing or an appraisal contingency. This can put you at risk of significant financial loss. You could lose your earnest money and be required to buy the house with no financing.

If You Are Using A Financing Contingency, Read The Fine Print.

Before you sign any financing agreement, it is important that you fully understand and read the terms. Then, ask your real estate agent or mortgage lender to clarify any ambiguities.