What Is a Financing Contingency in Real Estate?

A financing contingency (also called a loan contingency) is a clause in a purchase agreement that allows the buyer to cancel the contract if they can’t secure a mortgage. It protects buyers from losing their deposit if financing falls through before closing.

✅ How a Financing Contingency Works

  • Loan approval window: The buyer has a set number of days (usually 15–30) to obtain final mortgage approval.
  • Written notice: If denied, the buyer must notify the seller before the contingency deadline to cancel without penalty.
  • Earnest money protection: If financing fails and the buyer follows contract terms, their earnest money is refunded.

Without this clause, a buyer could lose their deposit if the loan falls through after signing.

💡 Why a Financing Contingency Matters

  • For buyers: Provides time to secure a loan without risking the deposit.
  • For sellers: Encourages serious, pre-approved buyers while limiting uncertainty.
  • For FSBO sellers: Understanding this clause helps you evaluate offers confidently when listing through a flat fee MLS plan.

📍 FSBO Tip: Review the Contingency Deadline

When selling by owner, check the contract’s financing contingency date. If the buyer’s loan approval period expires without notice, you may have the right to cancel or request proof of loan progress.

Learn more about how earnest money disputes, escrow, and who pays closing costs all connect to this step.