What is a Loan Contingency?
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A loan contingency is a common contingency included in most real estate purchase contracts. It gives the buyer a set period of time to obtain financing for the home.
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What is a loan contingency?
A loan contingency is a condition in a real estate purchase contract that protects the buyer in case the buyer is unable to obtain financing. The contingency gives the buyer a specified amount of time to obtain financing and if the buyer is unable to do so, the buyer can cancel the contract and get their earnest money deposit back.
What are the benefits of a loan contingency?
A loan contingency gives buyers the peace of mind of knowing that their financing is in place, and they will not have to scramble to find another way to pay for their home if their loan falls through. This contingency also protects sellers, as they can be assured that the sale will go through as long as the buyer’s financing is approved.
What are the risks of a loan contingency?
There are a few risks to consider when putting a loan contingency in your offer on a home.
The biggest risk is that the home seller could accept another offer that doesn’t have a loan contingency. If this happens, you’ll lose your earnest money deposit and possibly have to pay for the home inspection and appraisal out of pocket.
Another risk is that you could get pre-approved for a loan, but then be declined by the lender when you actually apply for the loan. This could happen if your financial situation changes or if the lender’s requirements change between the time you get pre-approved and when you apply for the loan.
If you’re not able to get financing, you could also end up in a legal battle with the seller over who gets to keep the earnest money deposit.
Overall, a loan contingency is a way to protect yourself when buying a home, but there are still some risks involved. Make sure you understand all of the risks before putting a loan contingency in your offer.
How can I protect myself from loan contingency risks?
If you’re worried about loan contingency risks, there are a few things you can do to protect yourself. First, make sure you understand all of the terms of your loan agreement. Secondly, if you’re buying a home, try to avoid using a loan that requires a loan contingency. Finally, if you do have a loan contingency, make sure you communicate with your real estate agent and lender so that everyone is on the same page.
