How to Protect Yourself With a Mortgage Contingency Clause

If you’re looking to protect yourself when buying a home, a mortgage contingency clause is an important tool to have in your arsenal. In this blog post, we’ll discuss what a mortgage contingency clause is, how it can benefit you, and some things to keep in mind before adding one to your offer.

What Is a Mortgage Contingency Clause.

A mortgage contingency clause is a provision in a real estate contract that protects the buyer if they are unable to obtain financing. The clause gives the buyer a specified amount of time to secure financing and if they are unable to do so, they can back out of the contract without penalty.

Why Would I Need a Mortgage Contingency Clause

There are many reasons why you might need a mortgage contingency clause in your real estate contract. If you are buying a home with an adjustable-rate mortgage, you may want to include a clause that allows you to back out of the deal if interest rates rise above a certain level. Or, if you are self-employed, you may want to add a clause that gives you extra time to secure financing if your income is not verified by traditional means.

Including a mortgage contingency clause gives you peace of mind and protection in case something goes wrong with your financing. It is important to remember, however, that having this clause does not guarantee that your loan will be approved.

How Can a Mortgage Contingency Clause Protect Me

A mortgage contingency clause is a great way to protect yourself when buying a home. If you are not able to get a mortgage, the contingency clause allows you to back out of the contract and get your earnest money deposit back. This is a great way to protect yourself from being stuck with a home you can’t afford if something happens and you are unable to get financing.

How Does a Mortgage Contingency Clause Work

A mortgage contingency clause is typically added to an offer on a home. It states that the offer is contingent on the buyer being approved for a mortgage. If the buyer is not approved for a mortgage, they can back out of the contract and get their earnest money deposit back. This protects the buyer in case something happens and they are unable to get financing for the home.

What Should I Know Before Adding a Mortgage Contingency Clause to My Offer

While there are some potential disadvantages to adding a mortgage contingency clause to your offer, it is generally considered a smart move when buying a home. One potential disadvantage is that it may make your offer less attractive to the seller, as they will know that you are not completely committed to the purchase. Additionally, if interest rates rise during the contingency period, you may end up paying more for your mortgage than you would have without the clause.

What Are the Risks of Not Having a Mortgage Contingency Clause

If you do not have a mortgage contingency clause in your offer and something goes wrong with your financing, you could be stuck with a property you cannot afford or be forced to default on your loan. This could lead to foreclosure and damage your credit score for years to come. Additionally, if interest rates rise during the purchase process and you are unable to get approved for a loan at the new rate, you may be forced to cancel the deal altogether.

Conclusion

A mortgage contingency clause can protect you from losing money if you’re unable to obtain financing for your home purchase. By including this clause in your offer, you can get your earnest money back if your loan doesn’t go through. While there are some risks associated with not having a mortgage contingency clause, the benefits outweigh the disadvantages.