What does a loan contingency in a real estate sale specify?

A loan contingency in a real estate sale specifies that the transaction is contingent upon the buyer securing financing approval. This clause is essential for buyers who need a mortgage to purchase the property, as it protects them by allowing them to back out of the sale if they are unable to obtain financing. The inclusion of a loan contingency ensures that the buyer's obligation to complete the sale hinges on their ability to secure a loan that meets certain terms, such as interest rates or amounts.

This provision provides both parties with peace of mind. For the buyer, it means they are not bound to proceed with the purchase if financing falls through. For the seller, it indicates that the buyer is actively working to obtain financing, and that the sale may still be realized if the buyer successfully qualifies for a loan within a specified timeframe.

Understanding this concept is crucial for navigating real estate transactions, as it directly affects the buyer's ability to finalize the purchase and the seller's confidence in moving forward with the sale.