Understanding Mortgage Contingencies in Real Estate Transactions

A mortgage contingency is a critical component of a real estate transaction, especially for buyers who rely on external financing to complete their purchase. This clause serves as a safety net, ensuring that both parties – the buyer and the seller – are protected should the buyer be unable to secure financing. Let’s dive into what a mortgage contingency is, its purpose, how it’s included in real estate contracts, and its significance.

What is a Mortgage Contingency?

A mortgage contingency is a provision in a real estate purchase agreement that makes the sale contingent upon the buyer securing a mortgage. It specifies a timeframe within which the buyer must obtain financing, and if the buyer fails to secure a mortgage within this period, either party can back out of the contract without penal consequences. This clause is particularly important in markets where financing is not guaranteed and serves to protect both the buyer and the seller.

Purpose of a Mortgage Contingency

The primary purpose of a mortgage contingency is to protect the buyer from losing their deposit should they fail to obtain financing. It ensures that the buyer is not legally bound to complete the purchase without the necessary funds, offering a way out of the purchase agreement without financial penalty. For the seller, it provides assurance that the buyer is earnest in their intention to purchase and is actively seeking financing.

Including a Mortgage Contency in Contracts

Including a mortgage contingency in a real estate purchase agreement is standard practice in many real estate transactions involving financing. This clause is typically negotiated between the buyer and the seller at the outset of the agreement process and is documented in writing as part of the contract. The specific terms, such as the duration of the contingency period and any conditions that must be met, are also outlined.

Importance of Mortgage Contingencies

Mortgage contingencies are crucial for several reasons:

  • Buyer Protection: They provide a safeguard for buyers, allowing them to back out if they cannot secure financing, thus protecting their deposit.
  • Seller Assurance: They assure sellers of the buyer’s intent and financial diligence in seeking a mortgage.
  • Transaction Sustainability: They contribute to the overall fluidity and sustainability of real estate transactions, ensuring deals are closed with qualified buyers.

Can it be Waived?

Yes, a buyer can choose to waive the mortgage contingency, often to make their offer more attractive in a competitive market. However, this comes with significant risk. If the buyer then fails to secure financing, they could forfeit their deposit and potentially face legal action for contract breach. Such a move should be considered carefully and typically only pursued by buyers who are highly confident in their financing or have alternative funding arrangements.


Mortgage contingencies play a pivotal role in real estate transactions, providing vital protections for both buyers and sellers. They offer a structured path for buyers to secure financing while ensuring sellers entertain offers from serious prospective buyers. Whether you’re looking to buy or sell, understanding the implications and mechanics of mortgage contingencies is crucial in navigating the complexities of real estate contracts successfully.