Which contingency is commonly included in a residential purchase agreement to protect the buyer if financing falls through?

• A. Financing contingency
• B. Appraisal contingency
• C. Insurance contingency
• D. Title contingency

Answer: (A)

The financing contingency is included to protect the buyer if securing a loan falls through. It makes the contract dependent on the buyer obtaining mortgage financing on terms acceptable to them by a set date. If the lender denies the loan or fails to fund under those terms, the buyer can walk away and usually get their earnest money back without penalty. This addresses the biggest risk for a buyer in a purchase agreement—being obligated to buy a property they can’t finance.

The other contingencies cover different risks. An appraisal contingency relates to the property’s appraised value vs. the purchase price; if the appraisal comes in low, the deal may be renegotiated or terminated, but that deals with value rather than loan approval. An insurance contingency isn’t a standard protective clause for financing since securing homeowners insurance is a separate requirement for closing, not a protection against loan denial. A title contingency concerns defects in the property's title, not financing.