A mortgage contingency is a clause in a real estate contract that allows the buyer to back out of the deal if they are unable to secure financing for the purchase. It protects the buyer by giving them an opportunity to be released from the contract and get their deposit back if they can’t obtain a mortgage loan within a specified time period. This is why it is important to have the right dates.

Here’s how it works:

1. If the Buyer Can’t Secure Financing: If the buyer is unable to get approved for a mortgage within the timeframe specified in the contract (often 30 to 45 days), they typically have the right to cancel the contract without losing their deposit. The mortgage contingency ensures that if financing falls through, the buyer can walk away without penalty.
2. What Happens to the Deposit? If the buyer backs out of the contract due to the mortgage contingency and provides the appropriate notice, the deposit is usually refunded. However, if the buyer is unable to get financing but does not have a valid mortgage contingency or fails to notify the seller within the required timeframe, they may forfeit their deposit.

In summary, the buyer can back out without penalty if they are unable to secure financing, as long as the mortgage contingency is in place, and the deposit is generally refunded. However, if the contingency is waived or expires, and the buyer backs out, the seller could retain the deposit as liquidated damages.