What happens if a loan contingency is in effect in a sales contract and the buyer cannot obtain financing?

When a loan contingency is in effect in a sales contract, it means that the buyer's obligation to proceed with the purchase is contingent upon their ability to secure financing. If the buyer is unable to obtain financing, the contract typically allows for the termination of the agreement without penalty. This is a protective measure for the buyer, ensuring they are not held responsible for purchasing a property they cannot afford due to financing issues.

In this context, the buyer can formally terminate the agreement, which preserves their earnest money deposit and keeps them from becoming legally obligated to proceed with the purchase without financing. The contract's terms specifically address this scenario, offering a route out to the buyer if they cannot fulfill this critical condition.

Other options do not reflect standard industry practices. For instance, while a broker might assist a client in various ways, they cannot typically lend money relating to the transaction. Sellers often consider adjusting the property price based on other factors but are not obliged to do so simply because a buyer fails to secure financing. Finally, placing a transaction on hold is not typically how these contingencies operate; the contract is either fulfilled or terminated based on the ability of the buyer to secure financing.