When To Use And Not To Use A Financing Contingency

What Is A Financing Contingency?

A financing contingency is a clause in a home contract that allows the buyer to cancel the contract before closing because of financing issues.

When Should I Avoid Using A Financing Contingency?

You'd think that anytime you're using bank financing, you should include this clause. However, it scares a lot of sellers because it makes the contract less likely to close. Further, in a hot real estate market (as it is in 2021), buyers can make themselves stand out by not using a financing contingency. If you are pre-approved for financing (as most are before they start looking for a home), then you likely do not want to add this contingency because you still can cancel the contract for the other contingencies in the home purchase agreement.

When Should I Use A Financing Contingency?

As shown above, financing contingencies can make sellers nervous. Still, if you are very unsure of the house or the lender, it's highly encouraged to use the contingencies to ensure that you are not forced to buy a house without financing.

About the author: Matthew Sanderson is a real estate lawyer in Texas. Matt is a managing member of the law firm of Cuccia Wilson, PLLC practicing real estate law since 2002.