1. A financing contingency in a purchase agreement protects the:
Answer & explanation
Answer: C. A financing (mortgage) contingency lets the buyer cancel without penalty if unable to secure the specified loan by the deadline.
contracts
financing contingency
A financing contingency, also called a mortgage contingency, is a clause in a purchase contract that makes the buyer's obligation depend on obtaining a loan on specified terms, such as amount, interest rate, and loan type, by a deadline. If the buyer cannot get the financing despite a good-faith effort, the buyer may cancel and usually recover the earnest money. If the deadline passes without notice, the contingency may be considered waived.
- Exam tip
- Contingencies protect the party they benefit; that party can waive them. Missing the contingency deadline is a common way buyers lose protection.
- Example
- The contract requires the buyer to obtain a 30-year loan of $320,000 at no more than 7% within 30 days, or the buyer may cancel and get the deposit back.
Related terms & state variants
Sources
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Last verified: 2026-10-23