What Is the Loan Contingency and How Long Does It Last in San Diego?

What Is the Loan Contingency?

The loan contingency — also called the financing contingency — is a clause in your California purchase agreement that protects you if your mortgage lender is unable to fund your loan. During the loan contingency period, you have the right to cancel the contract and receive a full refund of your earnest money deposit if your financing falls through for a legitimate reason.

How Long Is the Standard Loan Contingency Period?

In the standard California Residential Purchase Agreement, the loan contingency period is 21 days from the acceptance date of the offer. During this window, your lender is processing your application, ordering the appraisal, and working toward final loan approval. At day 21, you are expected to either remove the contingency or cancel the contract.

What Happens When the Loan Contingency Is Removed

When you remove the loan contingency by signing a Contingency Removal form, you are signaling that your financing is on track and you are committed to completing the purchase. If you subsequently cannot get your loan funded after removing the loan contingency, you may forfeit your earnest money deposit unless another contingency still protects you.

Reasons the Loan Contingency Might Not Be Removed

• Your lender declines the loan due to income, credit, or DTI issues discovered during underwriting
• The appraisal comes in significantly low and the lender will not fund the loan at the agreed price
• You lose your job or your income situation changes materially during the escrow period
• The property fails to meet lender property standards — common with FHA and VA loans
• Interest rates rise enough to push your payment above qualifying thresholds

Shortening the Loan Contingency Period

In competitive San Diego offers, buyers sometimes shorten the loan contingency period from 21 to 17 or even 14 days to make their offer more attractive. This is only safe if you have a fully underwritten pre-approval from a lender who can complete the process in that compressed timeline. Rieder Homes Group helps buyers evaluate whether shortening contingency periods is appropriate given their lender's processing speed.