In a real estate contract between the buyer and the seller, the contract may include a number of clauses called contingency clauses.  These are basically conditions that must be met in order for the transaction to move forward. 

One type of contingency clause is known as a “mortgage contingency clause."  Simply put, this is a clause stating that if the buyer cannot secure a mortgage loan within a stated time frame, either party is free to cancel the entire sales transaction.

This may be beneficial for both the buyer and the seller.  For one, it allows the buyer some time to secure a mortgage while at the same time keeping their purchase options open.  For the seller, such a clause can help keep the stream of interested purchasers moving along during the sales process and ensure that the buyer is committed to purchasing the property. 

Other types of contingency clauses in a real estate contract may include: subject-to-inspection clauses, subject-to-building code approval causes, subject-to-attorney-approval clauses, and subject-to-financing clauses.

What Is a Subject-to-Financing Clause?

A subject-to-financing clause is very similar to a mortgage clause.  Basically, a subject-to-financing clause allows a buyer to make a purchase offer before they know what kind of financing they can obtain.  Here, the buyer is also free to withdraw from the transaction if they are unable to secure some form of mortgage or loan.  

Subject-to-financing is often exactly the same as a mortgage clause.  One small difference between the clauses is that a subject to financing clause may have more to do with the buyer’s ability to make an offer in the first place.  With a mortgage contract, the offer may already be in place, and the seller may simply be waiting for the buyer to secure a mortgage arrangement. 

Also, some buyers or sellers may be very particular and may want to enforce a “subject-to-a-new-mortgage” clause.  This type of clause addresses a very specific type of financing, which is a new mortgage rather than a second or third mortgage. 

Do I Need a Lawyer for Assistance With a Mortgage Contingency Clause?

Real estate transactions are generally very complex and usually require the assistance of a real estate lawyer.  If you have any questions, concerns, or disputes about mortgage contingency clause, it is in your best interests to contact a real estate lawyer immediately.  Since real estate laws may vary by state, you may need to consult with an attorney regarding the review, drafting, or editing of a real estate contract.  Your attorney can also represent you in court if you have any legal disputes over the contract.