What is Loan Contingency Removal in Real Estate?

What is Loan Contingency Removal?

Loan contingency removal refers to a clause in a purchase agreement that allows a buyer to cancel the contract without penalty if they are unable to secure financing by a specified deadline. When the loan contingency is removed, the buyer is signaling they have obtained approval for their mortgage or are confident in their ability to finance the purchase, effectively waiving their right to back out of the deal based on financing issues. This step is crucial in the buying process, as it commits the buyer more firmly to the purchase, transferring risk from being able to legally exit the contract without losing their earnest money deposit, provided the contingency was not met.