What is a financing contingency?
A financing contingency is a clause in a purchase agreement that makes the buyer's obligation to close depend on getting a mortgage. If the buyer applies in good faith and the lender declines the loan, the buyer can terminate the contract and the earnest money is refunded. Without the contingency, a buyer whose loan is denied is in breach, and the earnest money is at risk. It is also called a mortgage contingency or loan contingency; the three terms mean the same thing.
How does a financing contingency work?
The buyer applies for the loan by a deadline, the lender underwrites the file, and one of three things happens: the loan is approved and the deal closes, the loan is denied and the buyer terminates with the earnest money refunded, or the seller gets tired of waiting and forces the buyer to either waive the contingency or let the seller cancel.
That third path is the one most explainers skip, and in Washington it is the one that actually governs the timeline. A financing contingency is not a countdown clock. It is a standoff: the buyer holds the protection as long as they keep meeting their obligations, and the seller holds a tool to end the standoff when they need certainty.
What is included in a financing contingency clause?
In Washington the clause is a separate form, NWMLS Form 22A, the Financing Addendum, attached to the purchase and sale agreement. It sets out:
- Loan type. Conventional, FHA, VA, USDA, bridge, or a second loan or HELOC. This matters because changing it later without the seller's written consent waives the contingency.
- Down payment. As a dollar amount or a % of the price. A buyer who wrote 20% down cannot quietly switch to 5% without renegotiating.
- Application deadline. The number of days after mutual acceptance the buyer has to submit a full application. The form's default is 5 days.
- Loan cost provisions. Any seller contribution toward the buyer's closing costs, prepaids, or rate buydown lives here. Our guide to seller credits covers what the seller can and cannot pay.
- The earnest money rule. What the buyer has to show to get the deposit back if the loan is denied.
- Appraisal provisions. What happens if the home appraises below the price, and the FHA, VA, and USDA appraisal certificate language.
What the Washington form does not include, and national articles list as standard, is a maximum interest rate. A Form 22A buyer is not protected if rates rise between offer and approval and the payment no longer pencils. That is a lender conversation, not a contract one.
How long does a financing contingency last?
Nationally, articles quote 21 to 30 days. In Washington the honest answer is: until closing, unless somebody ends it.
Under Form 22A, the contingency survives all the way to the closing date as long as the buyer applied on time and did not waive it, in writing or by default. There is no date on which it quietly expires. If the seller does nothing and the buyer does nothing, the buyer is protected through closing, and a loan denied the day before signing still returns the earnest money.
What ends it early is the seller's right to terminate. After the number of days written into the addendum has passed since mutual acceptance, the seller may deliver a notice on NWMLS Form 22AR telling the buyer that the seller may terminate. The buyer then has 3 days to waive the financing contingency. If the buyer waives, the earnest money is now at risk if the loan fails. If the buyer does not waive, the seller may terminate and the earnest money is refunded to the buyer. Our guide to the notice to perform in Washington walks through that exchange from both sides.
The practical effect is that the "financing contingency deadline" in a Washington deal is whenever the seller decides to send the notice, not a date on a calendar. Buyers who assume a 21-day window get caught by a notice on day 12. Sellers who assume the contingency expires on its own wait for a deadline that never comes.
How does the financing contingency work in Washington under Form 22A?
Form 22A runs on a set of deadlines and companion forms, and knowing them is the difference between a buyer who is protected and one who thinks they are.
Application: 5 days by default. The buyer must submit a full application, meaning name, income, Social Security number, property address, price, and loan amount, within the stated period. Miss it and the contingency is waived automatically. This is the most common way Washington buyers lose the protection without realizing it.
Loan information request: Forms 22AL and 22AP. After 10 days by default, the seller may ask once for the status of the buyer's application. The buyer has 3 days to respond with the application date, lender name, and what has been provided. A buyer who does not respond gives the seller grounds to terminate.
Seller's right to terminate: Form 22AR. Described above. The seller's only real lever, and the reason a Washington financing contingency has a practical deadline even without a written one.
Earnest money on denial. To get the deposit back after a denial, the buyer provides written confirmation from the lender stating the application date, that the buyer had sufficient funds to close, and the reason the loan was not approved. A buyer who stopped returning the lender's calls does not meet that standard. Our guide to whether earnest money is refundable in Washington covers the other ways a deposit comes back.
Appraisal less than sale price: Form 22AN. If the home appraises low, the buyer delivers a notice and the seller can reappraise, reduce the price, or reject. This is where the financing contingency and the appraisal question overlap, covered next.
Extension of closing. If the lender is required under Regulation Z to reissue disclosures because the APR or loan product changed, closing extends to accommodate the waiting period. A protection buyers rarely know they have.
Financing contingency vs appraisal contingency
They protect against two different failures, and in Washington they live on two different forms.
The financing contingency covers the lender declining the loan for reasons about the buyer: credit, income, employment, debt ratio, a file that could not be documented. The appraisal provisions cover the lender approving the buyer but not the price: the home appraisal comes in below the contract amount and the lender will only fund against the appraised value.
Form 22A handles the appraisal shortfall through its low-appraisal paragraph and Form 22AN. A buyer who wants to commit in advance to covering a shortfall uses Form 22AD, the increased down payment addendum. Our guide to appraisal gaps in Washington covers how that works and when to offer it.
Waiving the financing contingency on Form 22A also waives the low-appraisal protection. Buyers who waive to compete should understand they have given up both.
What happens if the loan is denied?
With the contingency in place and the buyer's obligations met, the buyer terminates and the earnest money is refunded. The seller goes back to market. Nobody is happy, but nobody loses a deposit.
Without the contingency, whether because the buyer waived it, missed the application deadline, or changed lenders without consent, the buyer is in breach when they cannot close. In Washington the seller's remedy is typically the earnest money, which Form 21 caps at 5% of the purchase price when the parties select liquidated damages. Our guide to how much earnest money to put down in Washington covers what that number looks like in practice. On a $900,000 home that is up to $45,000.
Denial after a waiver is the scenario the contingency exists to prevent. It happens most often to buyers who waived on a preapproval rather than a full underwrite, and then had a job change, a new debt, or a documentation problem surface in the final review.
Should you waive the financing contingency?
Only if your lender has already done the work a denial would depend on.
Waiving makes sense when you are fully underwritten, meaning the lender has reviewed income, assets, and credit and issued approval subject only to the property; when your down payment leaves room to absorb a low appraisal; and when you are competing against cash on a home you want. In that position the contingency is protecting you against a risk you have mostly eliminated, and removing it makes your offer read as nearly certain. The same logic governs waiving the inspection contingency, and buyers competing hard often face both decisions on the same offer. Our guide to how to buy in a seller's market covers the full underwritten-offer playbook.
Waiving does not make sense on a preapproval alone, with a thin down payment, with a job change or large purchase in your near future, or on a property type lenders scrutinize, such as a condo with a pending special assessment or a home with unpermitted work. A preapproval is a lender's opinion. An underwrite is a lender's commitment. Only the second one justifies giving up the contingency.
A middle path exists: keep the contingency but shorten the seller's right-to-terminate period in the addendum, so the seller knows they can force the question early. That tells a seller you expect to clear quickly without betting your deposit on it.
What to know if you are buying
The contingency protects the buyer who does everything right and nobody else.
Apply on day one, not day five. The default is 5 days. A full application, not a preapproval conversation. Get written confirmation from your lender of the application date.
Do not change lenders or loan type without written consent. Either one waives the contingency under Form 22A. If a better rate appears elsewhere, your agent asks the seller first.
Respond to a loan information request within 3 days. Form 22AL arrives, Form 22AP goes back. Silence gives the seller a reason to terminate.
If you are up against cash, compete on certainty, not by gambling. Our checklist for competing with cash offers in Seattle shows what a strong financed offer looks like without a waiver.
Know what a notice to perform means. Form 22AR is not a threat. It is the seller asking you to decide. You have 3 days. Do not waive unless your lender says your file is clear.
If the loan is denied, get the lender's letter. Application date, sufficient funds, reason for denial. That letter is what returns your earnest money.
What to know if you are selling
A financed offer with a financing contingency is not a weak offer. It is an offer with a question attached, and Form 22A gives you the tools to get it answered.
Read the application period and the termination period. A buyer who shortened both is telling you something about their confidence. A buyer who left the defaults is not necessarily weak, but you should know when your right to terminate begins.
Use Form 22AL early. Ten days in, ask for the loan status. A buyer who responds promptly with a named lender and an application date is on track. One who stalls is your early warning.
Send Form 22AR when you need certainty, not when you are angry. If you have a backup offer, a move-out date, or a purchase of your own depending on this closing, the notice gets you a decision in 3 days. The notice to perform guide linked above covers the timing.
Weigh a contingent financed offer against cash on net, not on certainty alone. A fully underwritten buyer with a short termination window at $30,000 more is often the better offer. Our comparison of cash offers vs financed offers covers how to read the stack.
Frequently asked questions
Do I need a financing contingency if I am already preapproved?
Yes, unless you have been fully underwritten. A preapproval is based on stated or lightly verified information and can be withdrawn when the lender reviews the full file. The contingency is what protects your earnest money if that review goes badly.
Can a seller reject an offer because it has a financing contingency?
Yes. Sellers can accept, reject, or counter any offer, and in a competitive market some sellers prefer offers without a financing contingency. That is why buyers waive it. It is also why a fully underwritten buyer with a short termination period often gets the same result without giving up the protection.
Can the financing contingency deadline be after the closing date?
In Washington, effectively yes. Under Form 22A the contingency survives to closing unless waived or terminated, so a loan denied the day before closing still returns the buyer's earnest money if the buyer met their obligations.
What does "no financing contingency" mean in a listing or offer?
That the buyer has agreed to close whether or not their loan funds. Either the buyer is making a cash offer, or they have waived the contingency and put their earnest money at risk if the lender declines. For a seller reading offers, it is one of the strongest signals of certainty a financed buyer can send.
Getting the contingency right on either side
The financing contingency is the clause that decides who absorbs the risk of a loan that does not fund. In Washington that risk does not expire on a date. It sits with the seller until the seller acts, and with the buyer the moment they waive, miss a deadline, or change the loan without asking.
At Every Door Real Estate, we help buyers decide when a waiver is a competitive move and when it is a gamble, and we help sellers read financed offers for the certainty behind them and use Form 22A's tools when the wait gets long. If you are writing or weighing an offer, talk with our team.
This article describes how NWMLS Form 22A generally works. Form language and default periods are revised periodically, and the blanks in your contract control. Confirm the specifics with your agent and lender.
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