What Does Waiving a Mortgage Contingency Mean?

Signing a real estate contract is a big commitment. To ensure that you're protected as the buyer, your agent may suggest you include a number of common contingency clauses in the real estate contract. A mortgage contingency clause generally allows you to cancel your purchase agreement if you are unable to obtain financing. If you "waive" this contingency, it means you don't have this protection.

A real estate purchase contract not only indicates the price you agree to pay, but it sets out important responsibilities you and the seller must fulfill to finalize the deal. One of your main duties as the buyer is to get approved for a mortgage and complete the steps to close on your loan. A mortgage contingency clause is a common buyer protection. You and your agent usually indicate that you will get a commitment to financing within a stated period of time, such as three to five days. If you cannot do so, you can typically get your earnest money deposit back — that's how the contingency clause helps you.

Waiving your mortgage contingency basically means you choose not to include this protection in your purchase contract agreement. This means that you cannot ask for your earnest money deposit back if you aren't able to get a home loan. Usually, if you fulfill your end of the deal — by obtaining the financing and going ahead with the purchase — the earnest money goes toward your down payment at closing. If not, and if you have waived the contingency, the seller can keep your money.

Waiving the opportunity to have a mortgage contingency may not make sense to you. However, anything you can do to remove possible restrictions to the seller can make your offer more attractive to the seller, and to choose your offer over others. In a seller's market where the homeowner has lots of interest in the property and multiple offers, he may not even accept a contract with a mortgage contingency. Leaving this out of your offer will more likely lead to acceptance of your contract offer.

Obviously, leaving out a mortgage contingency is a significant risk. If you can't purchase the home without financing, you stand to lose your money if you can't arrange the mortgage — in effect, you are canceling the contract without justification. Some states allow the seller to sue for more than the earnest money if his financial losses due to taking the home off the market exceeded the deposit amount. Getting prequalified with a lender and consulting a lender about how much you can afford can minimize your risks.