Financing Contingencies Explained: Protecting Your Buyer Without Killing Deals
The financing contingency is the buyer's right to cancel the contract if they cannot obtain mortgage financing on the agreed terms. Understanding when to waive, keep, and how to use it protects your clients.
What You'll Learn
- What the financing contingency covers
- When buyers should waive the contingency
- What notice must be given when exercising the contingency
- Bridge loan and backup offer scenarios
- How to structure contingencies in competitive markets
The Full Explanation
CTC Processing helps LOs give Realtors honest assessments of file strength before buyers consider waiving contingencies. A buyer who waives their financing contingency on a shaky pre-approval is at risk.
Frequently Asked Questions
Should my buyer waive the financing contingency to be competitive?
Only if the pre-approval is very strong (verified income, assets, and credit — not just an automated run). The risk of waiving is losing the earnest money if the loan falls through. CTC helps LOs give honest assessments.
When should the financing contingency be exercised?
When the lender cannot or will not approve the loan on the contract terms. This must be done in writing before the contingency deadline. Exercising after the deadline may result in earnest money loss even if the lender denied the loan.
What is the difference between a contingency deadline and the closing date?
The contingency deadline is earlier than closing — typically 14–21 days after contract. The loan must be approved (or the contingency exercised) by this date. The closing date is when the transaction actually closes.