If you are buying or selling a home, there are several ways to safeguard your interests. One protective element is a mortgage contingency clause.
However, is this one necessary with so many contracts and documents needed for selling and buying a home? Learn more here.
What is a mortgage contingency?
A mortgage contingency is a clause in the home purchase agreement that protects the buyer if they cannot secure a mortgage within a specified timeframe. Essentially, it grants the buyer the right to withdraw from the purchase without financial repercussions. It also allows them to keep the money they used as a deposit.
The importance of having a mortgage contingency
A mortgage contingency in your contract is a safety net. In a fluctuating market, loan approvals can be unpredictable. This clause ensures that if, for some reason, your loan application is rejected, you are not forced into a corner to buy a home that you cannot afford. It helps you avoid financial issues.
It also allows you to renegotiate the terms if the property’s appraised value is lower than the original agreed price. This means you do not have to worry about overpaying for the property.
When is a mortgage contingency unnecessary?
In highly competitive markets, sellers might favor buyers who waive the mortgage contingency to facilitate a faster sale. If you have a robust financial portfolio with substantial assets, it may be worth considering forgoing this contingency to stand out amongst multiple offers.
However, waiving it comes with a considerable risk, as you may lose your deposit money and potentially face legal repercussions if you cannot secure the financing within the agreed timeframe.
Making an informed decision
Whether to include a mortgage contingency in your contract is an important decision. Make sure you think about it carefully to determine if it is the best option for you. Knowing your legal rights and options when buying and selling a house will help ensure you have a positive experience.