Financing Contingency

TLDR: There are a lot of hoops you’ll have to jump through in order to obtain financing, so include this contingency in case you’re not approved.

An important contingency because the buyer has limited control over whether or not they'll be approved for a loan, the financing contingency prevents you from forfeiting your earnest money deposit if you're unable to obtain a mortgage. You won't need a financing contingency if you're not getting a loan since your purchase won't be dependent upon securing a loan from a bank.

The steps for obtaining a loan include:

Any of these steps could prevent you from obtaining a loan and impact your ability to close, which is why financing contingencies are so prevalent. This can be a stressful process since the underwriter might approve or deny the loan as late as the day of closing.

Fun(ish?) Fact

After the financial crisis of 2008, the federal government became much more stringent about who could obtain a loan, and those restrictions are passed onto you by requiring a seemingly infinite amount of documentation and paperwork. The lender will ask for bank statements, tax statements from prior years, and letters from giftors (if someone is helping you pay the down payment), to name a few.


“When my husband and I purchased our first home, we sold some stock his grandma had gifted him when he was a young child to use toward the down payment. The paper trail of the stock purchase was non-existent because the bank his grandma had originally been a member of had been acquired three or four times over the previous three decades. Trying to convince the underwriter that there was no receipt of purchase since it had been made 25 years ago was a huge headache. After hours with the bank and suggesting the underwriter call the bank itself, the underwriter finally allowed us to use those funds to purchase the house.

Needless to say, lenders are quite thorough when it comes to researching where funds have come from. No money laundering allowed!”

What happens if I'm not approved for a loan?

While getting rejected for a loan is almost certainly a deal-breaker when it comes to buying the house, if you have this contingency in your contract, you'll at least have your earnest money deposit returned to you. You may be able to find a different lender that will approve your loan, but you'll likely need to negotiate an extension with the seller.


Once you start the application process for getting a loan, do not open any additional credit cards, spend more on existing credit cards, or do anything else that could be seen as increasing your risk to the bank. Doing so will jeopardize your ability to obtain a mortgage, so keep your credit as clean as possible all the way until you've closed on the property. You can buy as much furniture as you want on credit after you close on the house.