Real Estate Glossary

What Is Financing Contingency?

In real estate, a financing contingency is a contract clause that protects the buyer against any legal-binding consequences if the transaction doesn't occur. The contract is only going to become legally binding if the buyer can ensure financing for the purchase of the property.

If the buyer cannot meet these terms and they've already won the bid for the property, no legal action must be taken against them, and the property can be re-sold to other buyers.

In addition, to make this clause work, the contract must specify a limit date for purchasing the house. If this doesn't happen, the buyer must immediately get back their earnest money.

Nonetheless, even though this clause can come in handy if you're the buyer, it can be very dangerous to accept if you're the seller. If the buyer fails to find funding to buy the property, you're probably going to end up losing a lot of time and money.

Therefore, you should always do a background check on the buyer to ensure they're capable of finding enough money to close the deal. However, if you're confident that the buyer is going to be able to find enough funding, accepting this deal shouldn't cause you any harm.