Overview

Purchase-contract contingencies and loan commitments work together to allocate risk between buyers, sellers, and lenders during a real‑estate purchase. Contingencies are written conditions in the purchase agreement (inspection, financing, appraisal, sale of another property) that protect a buyer’s earnest money and allow walk‑away or renegotiation. A loan commitment is a lender’s written assurance—usually conditional—that it will make a mortgage if underwriting requirements are met.

How purchase-contract contingencies typically work

  • Financing/mortgage contingency: The buyer can cancel if they cannot obtain the agreed mortgage. See our deeper guide to “Loan Contingency” for nuances and sample language: Loan Contingency.
  • Inspection contingency: Allows repair requests, price adjustments, or contract cancellation after a home inspection.
  • Appraisal contingency: Protects buyers when the appraisal is lower than the purchase price.
  • Sale-of-home contingency: Lets buyers condition the purchase on selling their current property.

How loan commitments work

  • Preapproval vs loan commitment: A preapproval is an initial credit snapshot; a loan commitment is a later, more formal letter after underwriting review. Most commitments remain conditional (they list items the borrower or property must still clear).
  • Typical conditions: satisfactory appraisal and title search, verification of employment/income, updated bank statements, and clear title.
  • Timing and expiration: Commitments include expiration dates and may require a signed closing disclosure or rate lock to finalize terms. If conditions aren’t met, the lender can withdraw funding.

Common scenarios and examples

  • Inspection uncovers major issues: The inspection contingency lets the buyer negotiate repairs or exit without losing earnest money. Learn how earnest money is handled in these cases in our article on Earnest Money.
  • Financing falls through: If the buyer’s loan commitment remains conditional and the borrower cannot clear the conditions, the mortgage won’t fund and the buyer may cancel under the financing contingency.
  • Buyer waives contingencies to win a bidding war: This can make offers attractive but exposes buyers to losing deposit or taking on unexpected repair or valuation shortfalls.

Practical checklist for buyers (my experience as a financial advisor)

  1. Get a written preapproval, then push for a commitment letter once underwriting progresses.
  2. Read the commitment letter carefully — note every outstanding condition and the expiration date.
  3. Keep documentation current (pay stubs, bank statements) until closing; lenders re‑verify before funding.
  4. Don’t waive contingencies without understanding the risk — consult your agent or advisor.
  5. Track deadlines in the purchase contract (inspection period, contingency removal dates).

What sellers should know

Sellers rely on contingencies to be removed to reduce closing risk. A buyer’s conditional loan commitment increases the chance of delay or a failed closing; sellers can ask for lender status updates or choose offers with stronger financing terms. For tactics to avoid delays, see our guide on Common Mistakes That Slow Down Mortgage Closings.

Risks and common mistakes

  • Misreading a commitment: Many borrowers assume a commitment is unconditional — most are conditional and require final verification.
  • Tight timelines: Missing a contingency deadline can forfeit remedies or earnest money.
  • Waiving appraisal or inspection protection: Saves time but shifts financial risk to the buyer.

Quick FAQs

  • Can a lender change terms after issuing a commitment? Yes — if the commitment lists conditions that later fail, the lender can alter or withdraw the offer. Final funding happens only after all conditions are satisfied and final underwriting is complete (verify with your lender).
  • Is a rate lock the same as a loan commitment? No. A rate lock secures an interest rate for a period; a loan commitment addresses the lender’s obligation to fund after underwriting conditions are met.

Sources and further reading

  • Consumer Financial Protection Bureau: mortgage process and underwriting basics (consumerfinance.gov).
  • U.S. Department of Housing and Urban Development: buyer protections and appraisal guidance (hud.gov).

Professional note and disclaimer

In my 15+ years advising homebuyers and investors, clear contingency language and active communication with your lender materially reduce closing delays and disputes. This article is educational and not legal or financial advice; consult a licensed real‑estate attorney, your real‑estate agent, or mortgage professional for guidance tailored to your situation.