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Most real estate transactions rely on a home buyer's ability to obtain a mortgage. If a buyer signs a purchase contract and discovers they can't secure financing, a mortgage contingency can come into play. In my 30+ years in this business, I've seen countless deals where the contingency clause made the difference between a protected buyer and a financial disaster.
A mortgage contingency, also known as a financing contingency or loan contingency, is a clause that allows buyers who can't secure a mortgage to cancel a home purchase contract without penalty and get a refund of their earnest money deposit. Think of it as your financial safety net in the complex world of real estate transactions.
Let me walk you through everything you need to know about mortgage contingencies in today's market, where understanding these protections has never been more important.
A mortgage contingency is a clause written into real estate transactions that gives home buyers a set time frame to secure a mortgage loan for a home. If they can't secure the loan, the buyer can walk away without legal repercussions and get their earnest money deposit back.
Here's something most lenders won't tell you: this clause isn't just a formality. It's one of the most important protections you have as a buyer. The mortgage contingency creates a contractual obligation that works both ways—it protects you while also establishing clear expectations for the seller about your financing timeline.
In the current market environment of late 2025 and heading into 2026, where mortgage rates have been hovering around 6.7% according to recent forecasts from the National Association of REALTORS® and other industry experts, having this protection is absolutely critical. I've seen too many buyers get caught without proper contingency protection when rate environments shift or their financial circumstances change.
Let me tell you how this plays out in real transactions. A buyer submits a purchase offer to a seller when they're ready to buy a property. If they haven't been preapproved for a mortgage or aren't sure whether they'll qualify for a loan, they can add a mortgage contingency clause to the offer. Once both parties sign the purchase agreement, the buyer will likely make an earnest money deposit, leading the seller to take the property off the market.
The purchase agreement will specify the mortgage contingency period, which is the length of time the buyer has to obtain financing from a lender. This timeline matters tremendously—set it too short and you might not have enough time to secure financing; set it too long and sellers may reject your offer in favor of buyers with tighter timelines.
Once the buyer gets approved for a mortgage, they'll provide the seller with a mortgage commitment letter from their lender, setting the next steps of the closing process in motion. This commitment letter is your golden ticket—it tells everyone involved that financing is secured and the deal can proceed to closing.
If the buyer doesn't qualify for the loan within the mortgage contingency period, they can back out of the deal. With a mortgage contingency clause, a buyer can terminate a home sale agreement during the contingency period without penalties if they can't secure financing in time. The buyer will get their earnest money deposit back, and the seller can look at other offers.
The loan contingency period typically lasts 30 to 60 days. The buyer and seller will agree to a time frame and add it to the purchase contract. Securing financing and mortgage lender approval is usually a crucial step for buyers before they can begin the closing process.
In my experience, 45 days is the sweet spot for most conventional transactions in today's market. It gives you enough time to get through underwriting without unnecessarily extending the seller's timeline. FHA and VA loans often need the full 60 days due to additional requirements and appraisal timelines.
A buyer can typically request an extension of the mortgage contingency deadline if they can't get the loan by the original deadline. The seller can either agree to the extension or reject it. If the seller refuses to budge on the deadline, the buyer must decide whether to cancel the deal or proceed without the contingency—a risky proposition that I generally advise against unless you're absolutely certain financing will close.
Understanding mortgage contingencies requires understanding the broader market environment we're operating in. After several years of sharp swings in home prices and mortgage rates, 2025 brought something buyers desperately needed: stability. According to mortgage market analysis, rates settled into a steadier range in the mid-6% territory rather than the dramatic spikes that defined 2022 and 2023.
The Mortgage Bankers Association projects that mortgage rates will average 6.7% in 2025, potentially declining to around 6% by late 2026 according to various forecasts from the National Association of REALTORS® and other industry experts. This is a far cry from the 7%+ rates we saw at their peak, but still significantly higher than the rock-bottom rates that existed before 2022.
Here's what this means for you: the lock-in effect that kept inventory tight is beginning to ease. As of Q4 2024, approximately 82% of homeowners with mortgages had interest rates below 6%, down from nearly 93% in early 2023. This gradual unlocking of inventory means more homes are coming to market, giving buyers more negotiating power—including the ability to insist on protective contingencies.
Home inventory increased 22% in 2024, with roughly a quarter of markets now at or above pre-pandemic levels, primarily in the southern United States. This improved supply situation means buyers aren't as pressured to waive contingencies to compete. I've seen the negotiating dynamic shift considerably in the past year.
First-quarter 2025 saw mortgage applications up 31% compared to the previous year, indicating that buyers are re-entering the market as rate volatility decreased. At the same time, approximately 25% of listings in August 2025 had price cuts according to industry data, showing that sellers are becoming more realistic about pricing in the current environment.
The home buyer and seller must agree on the conditions outlined in the mortgage contingency. It should include details on several key lending terms that provide real protection rather than just vague language.
The mortgage contingency period mandates how long a buyer has to secure a loan. The period, which both parties must agree on, typically ranges from 30 to 60 days. Be specific—use calendar dates, not just day counts, to avoid confusion about when the contingency period actually expires.
Sometimes, buyers and sellers opt to add a mortgage contingency extension date, which automatically extends the mortgage contingency period if the buyer can't secure a loan before the original deadline. However, the seller isn't obligated to grant a contingency extension. They can cancel the sale once the contingency expires and move on to other buyer offers.
Here's my advice after three decades: always negotiate for at least one extension provision built into the original contract. Require 48-72 hours' written notice before the seller can reject an extension request. This gives you negotiating time if you're close to approval but need a few extra days.
Most mortgage contingency clauses specify the type of mortgage the buyer must secure. After reviewing loan options, both parties must settle on the specific mortgage loan the buyer must qualify for to move forward with the closing process.
This matters more than you might think. If you're contingent on securing an FHA loan but end up only qualifying for a more expensive conventional loan, that can trigger your contingency rights. The same applies if you're expecting a VA loan but can't meet VA requirements—the contingency should protect you in that scenario.
Be as specific as possible: "Buyer contingent on securing an FHA 203(b) loan" rather than just "FHA loan" or "Buyer contingent on securing a 30-year fixed conventional loan meeting Fannie Mae standards" rather than just "conventional loan."
A key term of the mortgage contingency clause is the loan amount the buyer must secure. This condition acts as a secondary protection for the buyer. If the lender approves the buyer for an amount that differs from the amount in the contract, the buyer can terminate the sale without penalty.
This provision protects you if your financial situation changes or if the lender's final approval comes in lower than expected. For example, if you're under contract for $450,000 and your contingency specifies approval for at least $360,000 assuming a $90,000 down payment, but the lender only approves you for $340,000, you can walk away.
In practice, this rarely happens if you've been properly preapproved, but it's an important protection nonetheless. I've seen situations where borrowers lost jobs during the contract period, had major credit events, or discovered unexpected debt that reduced their borrowing capacity. The contingency protected them from losing their earnest money.
Buyers should let sellers know what interest rate they're comfortable paying monthly. If a buyer gets approved for a home loan with a higher rate, the mortgage contingency clause will allow them to back out of the sale penalty-free.
In today's rate environment, this clause is absolutely critical. When I'm working with buyers, I typically recommend setting the maximum rate at 0.25% to 0.50% above the prevailing market rate at the time of contract signing. This gives you some protection if rates spike but doesn't make your contingency so strict that you'll never qualify.
For example, if current rates are 6.5% when you write your offer, your contingency might specify a maximum rate of 6.875% or 7.0%. This way, a modest rate increase won't derail your deal, but a significant jump will trigger your protection.
Before signing the purchase agreement, the buyer must establish the closing costs and fees they must pay to secure the loan. One category of fees a mortgage lender typically charges is origination fees, which include the cost of processing, underwriting, and funding a loan. Buyers should factor these additional fees into their home buying budget.
Your contingency should specify a maximum for total closing costs. Typical language might state: "Buyer's total closing costs shall not exceed 3% of the loan amount" or "Buyer's origination charges shall not exceed 1.5% of the loan amount."
Here's something I've learned: always include language about discount points. If you're not planning to pay points, state that clearly. If market conditions change and suddenly lenders require points to hit your target rate, you want the ability to walk away rather than being forced to pay thousands in unexpected costs.
Real estate contracts often include various contingencies that can protect home buyers and sellers from unexpected issues during the sales process. These work in conjunction with your mortgage contingency to provide comprehensive protection. Back when rates were at historic lows in 2020 and 2021, buyers routinely waived these protections. That was a mistake even then, and it's an even bigger mistake now.
This clause allows a buyer to request a property inspection before agreeing to purchase the home. The inspection contingency typically gives buyers 7 to 14 days to conduct inspections and either approve the property condition, negotiate repairs, request price reductions, or cancel the contract.
In the current market where approximately 25% of listings had price cuts in August 2025, sellers are becoming more amenable to inspection contingencies. Use this to your advantage. The inspection contingency works hand-in-hand with your mortgage contingency because significant inspection issues can affect your ability to get financing—particularly with FHA and VA loans that have minimum property standards.
This clause allows a buyer to legally back out of a sale if a property appraises for less than its purchase price. If the buyer decides to buy the home despite the lower appraised value and the seller won't lower the asking price, a lender will likely request a higher down payment.
The appraisal contingency has become increasingly important as home prices have moderated. After declining slightly in late 2025—down about 1.4% in the last three months of the year according to some market analysis—appraisal gaps are less common but still possible. Your appraisal contingency should specify what happens in various scenarios: whether you'll walk away, whether the seller must reduce the price, or whether you'll split the difference.
Here's a pro tip from my years in this business: negotiate an appraisal gap clause that specifies you'll proceed if the appraisal comes in within a certain amount of the contract price. For example, "Buyer will proceed if property appraises for at least 95% of purchase price and will make up the difference in cash." This shows the seller you're serious while still protecting yourself from major appraisal shortfalls.
This clause helps ensure a buyer receives a clear title on a property. The buyer can request a title search for any liens or easements. Title issues can kill deals just as effectively as financing problems, and your lender won't fund a loan on a property with title defects.
Your title contingency should give you at least 10 to 15 days to review the preliminary title report and object to any unacceptable exceptions. Common title issues include old liens that weren't properly released, boundary disputes, easements that affect property use, and estate issues when inherited property is being sold.
This clause allows a buyer to back out of a sale if they can't sell their existing home within the agreed time frame. In today's market where the lock-in effect is gradually easing but still present, home sale contingencies are becoming slightly more common than they were in 2022-2023.
If you're making an offer contingent on selling your current home, expect some pushback from sellers. Make your offer more attractive by having your home already listed and under contract if possible. Some buyers use a "kick-out clause" that allows them to keep their home sale contingency but requires them to remove it if the seller receives another acceptable offer—this gives sellers some protection while still giving you time to sell.
Although most real estate agreements include a mortgage contingency clause, some buyers waive it. Let me be straight with you: this is almost always a bad idea. But there are a few specific situations where it might make sense.
Buyers usually consider waiving a mortgage loan contingency if they're paying for a property in cash, they're preapproved for the necessary loan with exceptionally strong approval, they're using seller financing, or they want to make a more compelling offer in a competitive market.
If you're paying cash and have proof of funds readily available, waiving the mortgage contingency makes sense because you don't need mortgage approval. However, you should still keep your other contingencies including inspection and appraisal. Cash doesn't mean you should overpay or buy a property with hidden defects.
If you've been fully underwritten with a "clear to close" approval except for the property address, and your lender has reviewed all your financial documentation, waiving the mortgage contingency carries minimal risk. This is different from a standard preapproval letter—this means you've already gone through full underwriting.
Here's where I disagree with a lot of conventional advice. Even in competitive markets, I rarely recommend waiving your mortgage contingency entirely. Instead, consider shortening it to 21 days instead of 30-45 days. This shows sellers you're serious and can move quickly while still giving yourself protection.
In 2026's market environment, competition has moderated compared to the frenzied 2020-2021 period. With inventory up 22% in 2024 and about 25% of listings seeing price cuts, you simply don't need to waive this critical protection to compete. If a seller demands you waive your financing contingency, that's often a red flag that they're not negotiating in good faith or they're concerned about their property's financability.
Leaving out the mortgage contingency clause can be catastrophic. If a buyer's financing falls through without the protection of a mortgage contingency clause, they'll likely lose their earnest money deposit and may open themselves up to additional fees and potential lawsuits.
I've seen buyers lose $20,000 to $50,000 in earnest money when deals fell apart without contingency protection. In some cases, sellers successfully sued for specific performance or damages beyond the earnest money. The risk simply isn't worth it except in the very specific scenarios I mentioned above.
One of the most common situations I encounter is when a buyer needs more time to close their financing but the contingency deadline is approaching. Let me walk you through how to handle this professionally and effectively.
The key is communication and documentation. If you can see that you're going to need more time, notify the seller and their agent at least 3 to 5 business days before your deadline. Don't wait until the last minute—sellers are much more willing to grant extensions when they're not surprised at the 11th hour.
Your extension request should include specific information from your lender: exactly where you are in the process, what specific items are outstanding, and a realistic timeline for completion. For example: "We're in final underwriting review. The underwriter has requested updated bank statements which we provided yesterday. Lender estimates we'll have final approval within 5 business days. Requesting 7-day extension to December 20th."
This is far more effective than vague requests like "We need more time." Sellers want to know the deal is progressing and will likely close—they just need assurance you're not stringing them along.
If the seller refuses to grant an extension, you have three options. First, you can exercise your contingency right and cancel the contract, getting your earnest money back. This is the safe play if you're genuinely uncertain about getting financing.
Second, you can remove the contingency and proceed at risk. This is what sellers are hoping you'll do, but it's dangerous. Only do this if your lender has given you written confirmation that approval is imminent and the only outstanding items are minor documentation issues.
Third, you can negotiate a compromise where you extend the contingency but increase your earnest money deposit or agree to make it non-refundable if the deal falls apart. This shows good faith to the seller while giving you a bit more time.
Here's something most buyers don't realize: contingency practices vary significantly by state and region. While the basic concept remains the same, the specific language, timelines, and enforceability can differ.
In some states, contingencies must be in specific language or they may not be enforceable. Other states allow more flexibility. Some states require specific notice procedures when invoking contingencies, while others are less formal. Your real estate agent and closing attorney or escrow officer should be familiar with local requirements.
For example, in some markets, contingency removal is done through formal addenda signed by both parties. In other markets, written notice from the buyer is sufficient. Some states give sellers the right to demand proof that a buyer is diligently pursuing their loan approval, while others don't have such provisions.
The timeline norms also vary. In some markets, 30-day contingencies are standard; in others, 21 days is typical. Market conditions obviously play a role, but local custom matters too.
Regional lender practices also affect contingency timelines. In areas where local banks and credit unions dominate, processing times might be different than in markets where large national lenders are most common. FHA and VA loans can take longer in some regions due to appraiser availability and local VA review procedures.
##9. Common Mistakes Buyers Make With Mortgage Contingencies
After three decades in this industry, I've seen the same mistakes repeated countless times. Let me save you from these pitfalls.
Generic language like "buyer contingent on obtaining suitable financing" is almost worthless. What's "suitable"? Without specific terms about rate, loan type, amount, and costs, you have no meaningful protection. Always insist on detailed, specific language.
This is shockingly common. Buyers lose track of dates or assume their agent is monitoring everything. Mark your contingency deadlines on your personal calendar and set reminders for 3 days before each deadline. If you haven't heard from your lender with approval, start making noise immediately.
Some buyers think they can start the mortgage process after they're under contract. This is backwards and creates enormous stress. Get fully preapproved before house hunting—this means your lender has reviewed your credit, income, assets, and employment, not just run your credit and given you a quick estimate.
I cannot stress this enough: do not make any major financial changes after you're under contract. Don't switch jobs, don't take out car loans, don't move money between accounts, don't make large cash deposits, and don't close credit cards. Any of these actions can affect your loan approval.
If you absolutely must make a financial change, consult with your lender first to understand the impact. I've seen deals fall apart because buyers financed furniture for their new home before closing, or because they took a new job that changed their income structure.
When you receive your Loan Estimate and Closing Disclosure, read every line. If the numbers don't match what you expected or what your contingency specifies, speak up immediately. Don't assume everything is fine because the lender sent documents—verify that the terms match your contract.
Lender requests for documentation aren't optional, and delays can cause you to miss your contingency deadline. When your lender asks for additional documents, provide them within 24 hours if possible. Every day of delay potentially eats into your contingency timeline.
A preapproval letter is not a guarantee of final approval. It's based on your initial application and documentation, but underwriting will dig deeper. Don't assume that because you have a preapproval letter, your contingency is just a formality. Continue working with your lender actively until you receive final clear to close approval.
Mortgage contingency clauses represent one of the most important protections available to home buyers in real estate transactions, allowing purchasers to cancel contracts without penalty if they cannot secure financing within the agreed timeframe. In the 2026 market environment where mortgage rates are averaging around 6.7% and gradually moderating toward 6% according to industry forecasts, proper contingency structuring has become even more critical as buyers navigate affordability challenges. With home inventory increasing 22% in 2024 and approximately 25% of listings seeing price cuts in August 2025, buyers now have more negotiating leverage to insist on comprehensive contingency protection rather than waiving these critical clauses. The contingency must include specific terms about loan type, maximum interest rate, approval amount, and acceptable closing costs to provide meaningful protection beyond vague language. First-quarter 2025 saw mortgage applications up 31% compared to the previous year, demonstrating renewed buyer activity as rate volatility decreased and market conditions stabilized. The typical 30 to 60-day contingency period can be extended if both parties agree, though sellers are not obligated to grant extensions and may pursue backup offers if deadlines expire without resolution. Working in conjunction with inspection, appraisal, title, and home sale contingencies, the mortgage contingency creates comprehensive buyer protection throughout the transaction process. Common mistakes include accepting vague contingency language, missing critical deadlines, making financial changes during the contingency period, and failing to respond promptly to lender documentation requests. While some buyers consider waiving contingencies to strengthen their offers, this practice should be reserved only for cash purchases or situations where buyers have received full underwriting approval, as the financial risks of proceeding without contingency protection can be catastrophic. Understanding regional variations in contingency practices and maintaining clear communication with all parties throughout the financing timeline helps ensure successful transactions that protect buyer interests while demonstrating good faith to sellers.
If you can't get mortgage approval before your contingency deadline, you have a few options based on your situation and the terms of your contract.
First, you can ask the seller for more time. They might agree if you can show that you're close to getting approved and give them specific paperwork from your lender about when you need the money.
If the seller won't give you more time, you can cancel the contract using your contingency right. This means you can get your earnest money back without having to pay a penalty if you do it before the deadline.
You could also choose to go ahead without the contingency protection, but this puts your earnest money at risk if the financing falls through. This option only makes sense if you have written confirmation from your lender that final approval is coming soon.
Some buyers agree to a compromise where they raise their earnest money deposit or make it non-refundable in exchange for a shorter extension. This shows that they are acting in good faith while also getting more time.
It's important to talk to the seller and your real estate agent at least 3 to 5 days before your deadline, not at the last minute. Sellers are much more willing to work with you if you give them notice ahead of time.
If you miss your contingency deadline completely without doing anything, it can be a problem. In some places, you may still be able to claim your contingency rights right after the deadline, but it's better to act before the deadline.
According to the most recent market data, mortgage applications were up 31% in the first quarter of 2025 compared to the same time last year. Lender processing times have gotten a little better, but there are still delays, so it's very important to manage your timeline well to make sure your transactions go smoothly.
Sellers can't back out of a deal just because it has a mortgage contingency. Once they accept your offer with the contingency clause, they have to follow those rules.
Sellers can turn down your first offer, though, if they don't like the terms of the contingency you suggested, especially if they get other offers with shorter contingency periods, no contingency at all, or terms they like better.
In today's market, where inventory rose by 22% in 2024 and about 25% of markets returned to pre-pandemic levels, sellers generally have to be more flexible with reasonable contingency requests than they did during the very competitive period of 2020–2021.
If you're under contract and the deadline for your contingency passes, the sellers can cancel the deal and keep your earnest money if you haven't either gotten financing approval or properly used your right to cancel before the deadline.
If you don't respond to their requests for proof that you're working hard to get loan approval, sellers can also cancel, but the rules for this vary by state.
Some contracts have "kick-out clauses" that let sellers keep showing the property and maybe even accept backup offers. Then, you have to remove your contingencies within 72 hours or release the contract. This keeps sellers from being stuck in limbo forever while still giving you protection for your contingencies at first.
Sellers are more likely to accept reasonable contingency terms if your offer is better in other ways, like the price, the amount of the down payment, and the overall financial strength shown in your preapproval letter.
If you know your lender can meet the timeline, you might want to shorten your contingency period to 21 or 30 days instead of the full 60 days to make your offer more competitive in markets where multiple offers are still common.
In the process of buying a home, preapproval and mortgage contingencies have very different uses. Just because you have one doesn't mean you don't need the other.
Before you even make an offer on a property, the lender will look at your credit, income, assets, and job to see how much they are willing to lend you. They will then send you a preapproval letter stating that amount.
The preapproval letter shows sellers that you're a serious buyer who has taken steps to get financing, which makes your offer more competitive. However, it doesn't guarantee that the lender will approve the loan because they haven't looked at the property yet and things can change during the contract period.
A mortgage contingency, on the other hand, is a part of your purchase contract that protects you if you can't get the money you need to finish the deal. If you don't get approval, you can cancel the contract and get your earnest money back.
Even buyers with strong preapproval letters should include mortgage contingencies because things can go wrong. For example, the property might not appraise, title problems might make the lender less willing to lend, your financial situation might change, market conditions might change, or underwriting might find problems that weren't obvious during preapproval.
Before you can play, you need to get preapproved. The mortgage contingency is your safety net in case something goes wrong during the game.
According to 2025 market data, the average interest rate is about 6.7%, and about 82% of mortgaged homeowners have rates below 6%. Preapproval at these rates doesn't mean that those rates will stay the same until you close. If rates go up beyond the maximum specified in your contract, your mortgage contingency can protect you.
Having both a strong preapproval that shows sellers you're financially qualified and a properly structured mortgage contingency that protects you from problems that come up unexpectedly is the best way to make sure a successful, safe transaction.
FHA, VA, and conventional loans all have mortgage contingencies that are similar in structure, but they often have different timelines and protections that are only available for that type of loan.
FHA and VA loans usually need longer contingency periods—45 to 60 days instead of 30 to 45 days for conventional loans—because government-backed loans have more requirements, such as stricter appraisal standards, minimum property condition requirements, and sometimes slower processing because the government is in charge.
FHA loans require properties to meet HUD's Minimum Property Standards. This means that if the appraisal shows problems like peeling paint, safety hazards, or system failures, the seller must fix them before the loan can close. Your mortgage contingency should clearly protect you if these problems come up and the seller won't fix them.
The VA requires that VA loans have a specific appraisal contingency language called the "escape clause." This lets veterans back out if the property doesn't appraise for the purchase price. This works with your mortgage contingency. To stay fully protected, VA borrowers should make sure their contracts include VA amendatory clause language.
Your mortgage contingency should list the maximum acceptable costs, including the funding fees or mortgage insurance that come with FHA and VA loans. This way, you won't be surprised by any extra costs.
Recent market data shows that overall mortgage performance is still strong. However, FHA delinquencies have risen 2.5 percentage points above pre-pandemic levels, and VA delinquencies have risen 83 basis points since early 2020. This doesn't directly affect your contingency rights.
Conventional loans are more flexible when it comes to the condition of the property and usually go through faster. However, they often require higher credit scores and larger down payments, so your contingency should take these stricter qualification requirements into account.
Talk to your lender about the realities of the timeline before setting contingency deadlines if you're applying for an FHA or VA loan and want to close quickly. These loans can be delayed by things like appraiser availability, repair negotiations, and government review processes that conventional loans don't have to deal with.
Some sellers, especially in competitive markets, prefer conventional financing because it takes less time. If you're using FHA or VA, a well-structured mortgage contingency that shows you understand the process and have realistic timelines can help your offer stand out more.
When you're dealing with contingency deadlines, don't trust your lender's word that your loan will be approved. Instead, ask for written proof before you remove your mortgage contingency or let the deadlines pass.
The letter you need is called a "clear to close" letter or "final loan approval." It says that the underwriter has looked over all the paperwork, the property has been approved, and the loan is ready to be funded as long as the usual closing conditions are met, such as verifying employment and assets.
You can't safely remove your contingency just because you have a commitment letter or conditional approval. These letters usually list dozens of conditions that still need to be met, and any of these could lead to the loan being denied.
If your lender says yes over the phone but hasn't sent you any written proof, ask for the clear to close letter or final approval letter in writing right away.
If you're not getting the runaround as your deadline approaches, don't be afraid to talk to the loan officer's manager.
Lenders are getting more applications than ever before, with a 31% increase in the first quarter of 2025 compared to the same time last year. This can cause processing delays, which makes written documentation even more important.
If your contingency deadline is coming up and you only have verbal approval, let the seller know in writing that you are working hard to get financing and ask for an extension while you wait for written confirmation.
Be specific about what needs to be done and when it needs to be done.
Most importantly, don't let your contingency run out just because the lender promised you verbally that they would. If the loan falls through, you'll lose your earnest money and may have to pay more, even if the lender told you verbally that they would.
Ask all of your lender's communications to be in writing, such as by email, instead of over the phone. This way, if there are any problems later, you will have a record of everything.
If your lender is being vague about giving you written approval and your deadline is only a few days away, this is a warning sign that there may be problems they haven't told you about. In this case, you might want to use your right to cancel and protect your earnest money instead of going ahead with the deal.
Some buyers try to get sellers to drop the contingency early in exchange for a faster closing or other concessions, but you should never do this until you have written confirmation that you are clear to close. The savings from a slightly faster closing are not worth the risk of losing your earnest money.
It's important to understand the connection between your mortgage contingency and your lender's rate lock, but many people don't. If you coordinate these two timelines correctly, you can avoid surprise rate increases.
When you lock in your interest rate with your lender, you are guaranteed that rate for a certain amount of time, usually 30, 45, or 60 days. This is as long as the loan closes during that time.
To avoid problems, your rate lock period should match or be a little longer than your mortgage contingency period.
If rates go up after you lock but before you close, your rate lock protects you as long as you close within the lock period. But if rates go down, you're usually stuck with the higher locked rate unless your lender offers a float-down option, which many do for a fee.
This is where your mortgage contingency comes in. If you've set a maximum interest rate in your contingency and your lender can't honor your locked rate because processing delays made your lock expire and rates have gone up a lot, you can use your contingency to cancel the contract without having to pay a penalty.
In the 2026 rate environment, where the Mortgage Bankers Association and National Association of REALTORS® expect rates to slowly drop from the current 6.7% average to 6%, timing your rate lock becomes very important.
If you lock too soon, you might miss out on possible drops, but if you wait too long, you might have to deal with rises.
If your rate lock runs out before closing because of delays you can't control, lenders usually offer to re-lock at the current rates. However, if those rates are much higher than your original lock and go over your contingency maximum, you don't have to go through with the deal.
Some buyers try to use very aggressive maximum rate specifications in their contingencies essentially as a "rate bet"—for example, locking in at 6.5% but writing a contingency with a 6.25% maximum—hoping that if rates don't drop, they can back out; this is risky strategy that can damage your reputation and credibility with real estate professionals.
Instead, set your maximum rate at a reasonable buffer above current rates, maybe 0.25% to 0.50%. This will protect you from rate spikes while also showing good faith that you plan to go through with the deal unless the market changes a lot.
If you have to choose between a 30-day rate lock with a 45-day contingency and a 45-day lock that matches your contingency period, the longer lock is usually worth the extra money because it makes sure your lock doesn't expire before your contingency.
However, this isn't as important right now when rates are more stable than they were during the volatile period of 2022-2023.
Mortgage contingencies are mostly used when buying a home instead of refinancing because the risks and mechanics are very different between the two.
When you buy a house, you're making a promise to the seller that you'll buy it, and they're taking it off the market because of that promise. If your financing falls through, you need contingency protection so you don't lose your earnest money and have to deal with possible legal liability.
You already own the property in a refinance or cash-out refinance, so you're just getting a new mortgage to replace your old one. There are no purchase contracts, sellers, earnest money deposits, or contingency clauses.
If your refinance doesn't go through, you just keep your old mortgage and nothing changes except that you've wasted time and application fees.
However, there are some similar protections in refinance transactions.
For example, most refinance applications include upfront disclosures of estimated costs and terms.
Also, under federal law, you have three days to cancel the transaction for any reason after signing the closing documents on your primary residence.
If you're getting a bridge loan or selling your current home with the condition that you can refinance another property you own to get the money for the down payment, you might want to add a financing contingency to your purchase contract. This will protect you if the refinance doesn't close as planned.
This is more complicated and usually requires careful coordination between your purchase agent, refinance lender, and lawyers.
According to data from the fourth quarter of 2024, about 82% of mortgaged homeowners have interest rates below 6%. This means that most current homeowners are "locked in" to low rates.
Refinancing only makes sense for certain reasons, such as cashing out to access equity, consolidating debt, or getting rid of mortgage insurance.
In these cases, if market conditions change and refinance rates rise before closing, you can simply choose not to go through with the refinance without paying any penalties other than the application fees you've already paid.
Some purchase contracts have what's called a "sale of other property" contingency. This means that your purchase depends on your ability to refinance another property to get the money you need. Sellers don't like these contingencies because they make things less certain.
If you need this type of protection, work with your lender to get preliminary refinance approval before you write your purchase offer. This will make your timeline more realistic and your contingency more appealing to sellers.
Fact Checked
