Using a Mortgage Contingency Clause When Buying a Home in Texas

How you are going to finance your new home through a mortgage company Dallas is one of the most important decisions you ever have to make. When purchasing a new home, you’ll most probably come across a mortgage contingency clause.

We’re going to tell you all about what a mortgage contingency is, why it is necessary, how it works, and how you can use it when buying a home in Texas.

What is a Mortgage Contingency clause?

A mortgage contingency is a clause that includes certain terms and conditions that must be met for a house to be sold. 

This clause is in real estate transactions and gives individuals who are ready to purchase homes a certain time frame to secure a mortgage to finance their new home. 

In general, this contingency clause gives homeowners a specified amount of time they have to secure their financing.

If a mortgage or loan is not secured by the new homeowner, then that person can easily walk away without any legal penalties or repercussions.

Why is a Mortgage Contingency necessary?

A mortgage contingency protects both the buyer and seller of the home, in case a mortgage loan falls through.

In the case of the seller, if the buyer is not able to purchase or finance a home that is being sold, the contract can become void. This is in favor of the seller, who can back out of the home agreement as well, and then can put the house back in the market for selling and find another buyer of the home. 

Hence, the seller won’t be stuck with this buyer if the latter isn’t able to finance the home. This is how a mortgage contingency protects the seller.

If we talk about buyers, the contract will again become void if they are unable to secure a loan within the specified time. 

In this case, the buyer can easily back out from the agreement even if their loan hasn’t been finalized. Without having to worry about any legal penalties. They will also get all their upfront costs or earnest deposits back.

Disadvantage In This Case.

Therefore, neither the seller nor the buyer is at disadvantage in this case.

We’ve discussed financial mortgage contingencies, but there are other contingencies you must know about when financing your home:

• Home inspection: In case there are major issues and problems related to the new house, the buyer can still back out of the agreement. However, it is imperative to back out before the home closing date. When a buyer backs out in this case, they will not be charged with any penalties
• Home sale: With this type of contingency, the home buyer will need to sell their current home. The reason for this is that the buyer will not need to go through the headache of two mortgages. In simple words, they won’t be stuck between two home loans or mortgages at the same time
• Appraisal: This type of contingency protects the buyer that the home they are ready to purchase appraises for at least the purchase price. If this does not happen or is the home appraised less than the current price, then the buyer can easily back out. The buyer will also not need to worry about their upfront deposits or their earnest deposits going down the drain

Active vs. Passion Mortgage/loan contingencies

When coming across a mortgage contingency clause, it is essential to know about these two types of mortgage contingencies.

Active contingency

If an active contingent status is given to a home or property. It means that the seller of that home has accepted the offer from the buyer.

But, the final deal or agreement is not finalized in this case. This is because there are still some contingencies that have to be met before the sale of the property or house can be finalized. 

The common contingencies that will be included may be the buyer’s. Contingency for a home inspection or discussing any repairs that need to be done before the home closing. 

For instance, let’s suppose you are a home buyer, and you have a homes inspection contingency for 20 days. You don’t remove the contingency, but you can still get the homes inspection. You won’t have to worry about losing your upfront deposits or earnest money in this case.

 The time period for an active contingency can differ, but can usually take up to 1 to 2 weeks long.

Passive contingency

In this type of contingency, the contingency is automatically removed when the deadline has passed. In most mortgage contingency clauses you’ll come across, you might be required to let your seller know within 30 days. If not, then the contingency expires itself.

However, it is also important to note that in this type of contingency. The buyer might still be contractually obligated to purchase the homes. They might also lose all their upfront deposits, and will also be at the risk of possible lawsuits.