Financing in Fremont>Question Details

Ds, Home Buyer in Fremont, CA

Can someone explain what does the Loan Contingency Period mean when buying a home and what is the standard?

Asked by Ds, Fremont, CA Fri Apr 4, 2008

period? Do we pay a penalty if we backout of the process while within that period?

Help the community by answering this question:


Loan Contingency is a way of protecting a buyer from sudden interest rate spike upon acceptance of a contract and which would make him unable to qualify for a loan. There are no standards and the number of days could vary from zero days to 17days or even until the loan gets funded. Your agent should be in a position to advise you on this. In hot markets, offers are made with no loan contingency.
0 votes Thank Flag Link Fri Apr 4, 2008
Not sure if there is a "standard".. but what it means is you're stating that your offer is "contingent" (dependent) upon your ability to obtain a mortgage within a certain period of time (often 30 days), within certain parameters (like 7%, with 1 origination point for a 30-year fixed conventional loan).

If, it turns out, that you cannot obtain the mortgage within that time frame, sometimes the sellers are allowed either to obtain one for you (if they can), or act as the bank and give you a loan themselves, using the parameters you set up. Now that does NOT mean, if you can't get a mortgage with a 5% rate... it specifically means you can't get approved for the rates you wrote into the contract. Nor does it mean, that you qualify, but now you're suddenly scared that the payment is more than you can handle.

If they opt not to find one for you, or carry the paper themselves, then you are released from the contract with the full return of your earnest money.
2 votes Thank Flag Link Fri Apr 4, 2008
Alan May, Real Estate Pro in Evanston, IL
Loan Contingecy period is design to protect the buyer in case they are not able to qualify for a loan. Usually the California Residential Purchase Agreement has a default date of 17 days. This means that you have 17 days to complete the loan process and get a loan approval within that time frame. After that, you will have to remove the loan contingency and you will be tied to the cotract.

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1 vote Thank Flag Link Thu Mar 22, 2012
In our market, you cannot "back out" during that period, but if your lender rejects your loan, then you must submit the loan rejection paperwork to the seller before the contingency period expires. If you meet this requirement by the loan contingency deadline, then you are not in default and should expect to be refunded your earnest money.
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1 vote Thank Flag Link Fri Apr 4, 2008
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