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What is a ‘mortgage contingency clause’? |
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A "mortgage contingency clause" is a provision in the home purchase contract that says that if the prospective buyer can’t get a mortgage within a fixed period of time, s/he can call the whole deal off. In other words, the agreement is conditional on the buyer being able to obtain a mortgage on the property.
Be cautious. There is no universal "standard" mortgage contingency clause. The seller would prefer that the sale close no matter how high the interest rate and how horrible the terms the mortgage carries for the buyer. The buyer wants to be sure that if s/he can’t get the mortgage s/he is counting on, such as one with 90% financing on a 30-year loan, the mortgage at no more than X%, s/he can walk away from the transaction and recover the down payment. The seller may be concerned that the buyer is leaving the transaction too uncertain. Thus these provisions are often negotiated. |
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