What is a mortgage contingency?

A mortgage contingency is a clause included in a purchase agreement that provides the buyer with the right to cancel the contract if they are unable to secure financing for the home purchase. This means that if the buyer cannot obtain a mortgage within a specified timeframe, they can walk away from the deal without facing consequences, essentially protecting their earnest money deposit. This contingency is crucial for buyers, as it ensures they are not obligated to proceed with the purchase if financing falls through, allowing them to manage financial risk during the home-buying process.

The other options do not represent the function of a mortgage contingency. One discusses homeowner's insurance terms, which relates to protecting the property after purchase, while another addresses the need for a second mortgage that is not a standard requirement in a typical purchase scenario. The fourth option refers to property appraisal conditions which are relevant to confirming property value, but this does not provide the same cancellation provisions tied to financing failure as a mortgage contingency does.