A loan contingency, or financing contingency is a clause in a homebuying contract provides a buyer the ability to back out of the transaction if they are (by no fault of their own) unable to secure a mortgage loan under the terms described in the contract (such as downpayment, loan amount, interest rate, and term). Some states spell out this contingency in a seperate financing addendum to a home buying contract.
For example, if a buyer offers $400,000 for a home, and in their loan contingency stipulates that they'll be putting $100,000 down and financing $300,000 over 30 years at market rates, and they get rejected by their lender for that specific loan, they can recover their earnest money and walk away.
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