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Negotiating a mortgage loan contingency when buying a home

On Behalf of | Aug 21, 2020 | Real estate transactions |

Few people here in Tennessee, or elsewhere for that matter, can buy a home for cash. The majority of people will need to borrow the money needed in order to do so. Obtaining a loan is not always as easy as it sounds, which is why a mortgage loan contingency regarding the ability to find financing for the purchase is essential.

When an individual enters into a contract to buy a home, he or she must often put down earnest money, which provides the seller with some assurances before taking the property off the market once an offer is accepted. This is often a substantial sum for the individual making the purchase, and it may be forfeited if the sale falls through — though that depends on the specific circumstances. One of the reasons why a property purchase may not close is due to the buyer not being able to obtain financing.

With a mortgage loan contingency included in the purchase contract, it may be possible for the buyer to walk away with his or her earnest money if financing falls through. However, the seller will most likely want some sort of deadline by which the buyer must either obtain financing or back out of the deal, which is often anywhere from 30 to 60 days. If nothing happens at the expiration of the contingency period, the buyer is bound to completing the transaction. If he or she does not do so, the seller may be entitled to monetary damages, including retention of any earnest money already paid.

A Tennessee resident looking to purchase a home will want as much protection as possible, but so will the seller. A mortgage loan contingency provides the buyer and seller certain assurances. The buyer has time to get the financing locked in and the seller has a deadline to count on. Like other contingencies in the purchase contract, a mortgage loan contingency provides a vital protection and it would probably be a mistake not to include one.