The financing contingency is often misunderstood.
The financing contingency is actually a ratherbroad term for a contract contingency that can include many negotiable parts, such asan appraisal contingency or minimum loan amount contingency.
It’s important to understand that whilea financing contingency is often asked for during the offer negotiation stage, it isfleshed out in more detail during the contract review stage between the lawyers.
What Is the Financing Contingency? The financing contingency is a contract contingencythat allows a home buyer a certain amount of time post contract execution to securea loan commitment letter.
If the buyer makes a bona fide effort yetstill fails to secure a financing commitment from a lender, the buyer is allowed to cancelthe contract and walk away with their earnest money check.
Because the financing contingency is a contractcontingency, it only takes effect after a listing is in contract.
This means that the financing contingencyoffers protections to the buyer after a purchase contract has been fully executed.
Essentially, a financing contingency providesthe buyer with a way out of the contract in case he or she is not able to secure a financingcommitment letter, typically within 30 to 45 days after contract execution.
Is a No Financing Contingency Offer Better? A no financing contingency offer is certainlymore attractive for sellers, but is less advantageous for buyers.
Having no loan contingency means a greatercertainty of close in the eyes of the seller, which equates a non-contingent offer utilizingfinancing to that of an all cash offer.
Of course, all cash offers are still the bestbecause they are faster to close due to not having to wait around for a bank to fund aloan.
However, no loan contingency isn’t so greatfor a buyer that actually needs a loan to be able to close.
If the buyer doesn’t have backup funds tocover the entire purchase plus closing costs in case he or she doesn’t get funded, thenhe or she risks having to default on the contract and losing his or her contract deposit! What Are the Standard Offer Contingenciesin NYC? The most common and really only “standard”offer contingency in NYC is the financing contingency.
This financing contingency is typically requestedwithin the offer email that the buyer’s agent sends to the listing agent.
Is the Financing Contingency Also a FundingContingency? No.
A funding contingency allows a buyer to cancela contract if he or she is unable to obtain funding to complete the purchase.
A funding contingency essentially protectsa buyer if the bank pulls its lending commitment before closing.
For example, a loan commitment letter willhave a number of contingencies and conditions that must be satisfied prior and up to closing.
For example, the lender will usually callthe HR department of the borrower’s company to verify employment status a couple of daysbefore closing.
If the borrower has lost his or her job inthe interim, then this will be a condition that will cause the lender to renege on theirlending commitment.
A funding contingency can protect againstthis so called “funding gap” risk.
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