Can anyone explain the mortgage contingency?

Asked by Abigail Bussard, Oak Park, IL Wed Feb 8, 2012

More specifically which is true:

1. The seller will check to see that you have a secured a loan by the contingency date. If you haven't, they cancel the contract.

2. If you don't secure a loan on or before the contingency date - you are still under contract until closing, but you now risk losing your earnest money should you not secure the loan by closing.


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David Lemay, Home Buyer, New York, NY
Wed May 3, 2017
A mortgage contingency clause in New York City allows a buyer to back out of a deal and receive a refund of his/her deposit if the bank does not agree to extend a loan within a certain time period.

In NYC, it's pretty common for buyers who are not 'all cash' to waive the contingency in order to make their offers more competitive against buyers who are not financing the purchase. When there is no contingency, the seller has a higher degree of certainty that the deal will go through.

If there's no contingency and the financing falls through, then the buyer will either have to find the money somewhere or cancel the deal and forfeit the entire 10% deposit to the seller.

*word of advice* - in NYC a mortgage contingency clause can either be 'passive' or 'active'. You'll want to be careful if you agreed to a passive contingency because they can expire automatically if you forget to trigger them!
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Daniel, , Baton Rouge, LA
Wed Feb 8, 2012
Why would any seller accept an offer without personally calling the buyers banker to verify that the buyer is capable of completing the transaction.
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Terry Perdue, Agent, Chicago, IL
Wed Feb 8, 2012
Hi Alison,

It plain terms, it means, that you obtaining this home is subject to you getting a mortgage. The dates are set out on your contract. If you need any further explanation or details please feel free to contact your bank or mortgage lender.

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Flag Wed Oct 16, 2013
Michael Vrie…, Agent, Chicago, IL
Wed Feb 8, 2012
Hi Alison --

Again, you definitely should check with your attorney on all of this, and your specific contract language, however between your two options #2 seems more correct. If your attorney does not request an extension before the contingency date is up, you risk losing the protections given from the mortgage contingency clause.

Generally the sellers do not check to see if you have secured a loan by the contingency date. The onus is on you and your attorney to request an extension before the deadline.

Good luck with this!

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Richard Rawd…, Agent, Southampton, NY
Wed Feb 8, 2012
This is a common question when you are not 100% sure you have been approved for a mortgage. This contingecy allows you to "get out" of the deal if you do not obtain a mortgage. The best way to avoid this pitfall is to ask your bank, or lending institution for a commitment letter. This insures the amount of money the bank is going to loan you on a purchase of a home. Most buyers love to have this in their contract. Sellers really do not want to have a mortgage contingecy. Best advice: Speak to your lender and obtain a commitment letter. Doing this will pretty much insure your purcahsing the home of your dreams.
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D, , Bonita Springs, FL
Wed Feb 8, 2012
I would contact your local Real Estate Attorney in Chicago to best protect yourself. Here in FL, some will offer free advice if you close with them / title insurance. Good luck.

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Philip Sencer, Agent, Chicago, IL
Wed Feb 8, 2012
You seriously need to speak with your attorney and agent about this if you are already under contract. If you have not received your 'commitment letter' from the lender by the contingency date you have a choice to either cancel the deal or ask for an extension. If you do neither and you do not get your loan you risk losing your EM. You need to rad what the contract says or more importantly ask your attorney.
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David Hanna, Agent, Chicago, IL
Wed Feb 8, 2012
Short answer- both may be true.
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Alan May, Agent, Evanston, IL
Wed Feb 8, 2012
The mortgage contingency in the typical Chicago area contract states that by the specified date, you will have a mortgage commitment in place. Meaning that your lender is prepared to fund your loan.

If you don't have a mortgage commitment by that date, you have a couple of options.
1) You can request an extension of that mortgage contingency date, in hopes of getting the commitment. (the seller doesn't have to oblige).
2) You can cancel the contract, and expect full return of any earnest money.

If you allow the mortgage contingency date to pass, and have not yet obtained your mortgage, your safeguard (the contingency) lapses, and you could now be obligated to purchase the property, with or without a mortgage, so it's wise to make sure that you keep good track of your deadlines.
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Deborah Smith, Agent, Oak Forest, IL
Wed Feb 8, 2012
The contract allows a limited amount of time for the buyers to be approved for a mortgage in order to buy the property. If the buyers aren't approved within the time frame, then the contract can be voided.The wording in a mortgage contingency is crucial. Failing to adhere to the strict instructions in the clause could result in a buyer being on the hook for a property even though he couldn't get a loan. Make sure your loan officer explains the mortgage clause to you to insure the safety of your earnest money. Debbie Bergthold-Smith Classic Real Estate
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Dirk Gould, Agent, Chicago, IL
Wed Feb 8, 2012
This should answer both 1. and 2. above. The mortgage contingency is actually for your protection. If you can't secure a loan by the mortgage contingency date (or any extensions that you attorney can get you), you have the right to back out of the contract and get your earnest money back. However, you must notify the seller/seller's attorney in writing or you will waive this right.
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Matt Laricy, Agent, Chicago, IL
Wed Feb 8, 2012
I would really consult with your lender and attorney and agent. These people should be helping you every step of the way.

1)They can cancel the contract if its not secured, but you should have your attorney ask for an extension

2) They can take your earnest money depending on which contract you used, but you should of used one that protects you.

You should really of had all this information presented to you.
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Joe Schiller, Agent, Chicago, IL
Wed Feb 8, 2012
the contingency says that the buyer has until the date agreed to secure a mortgage and will be at closing with said mortgage or loose earnest many and pay for more damages if sellers feel that compensation is not adequate.. the buyer looses and is responsible waived your right to cancel the contract when you did not inform the seller.. earnest money is lost.- this is a poor attorney and poor agent issue.. Hire a professional like me nest time.
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Ron Thomas, Agent, Fresno, CA
Wed Feb 8, 2012
The LOAN CONTINGENCY means that if you are not able to secure a loan, in the time specified, that you can back out of the Contract and receive your Deposit back.

The Seller or his Agent cannot "check to see that you have a secured loan"; this is confidential and someone from the outside cannot access this information. It is up to you to communicate with them!

If you do not get the Loan, and you do not notify the Seller by the Contingengy date, you are liable for "at least" the amount of the Deposit. Meaning, that according to the terms of your Contract, the Seller could either sue you, or take you to Arbitration/Mediation for another amount.

To answer these questions fully, you should read your Contract or consult an Attorney.

Understand that INTENT is everything; your INTENT is to buy the house, and the Seller's INTENT cannot be to get your Deposit. Talk to your Attorney.

Good Luck and may God bless
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