A financing contingency protects your earnest money while your mortgage is being approved. If the loan described in the contract isn't approved by the deadline, and you tell the seller in writing in time, you can cancel and get your deposit back. In Florida, most homes are bought on the Florida Realtors/Florida Bar contracts, where this protection sits in the financing paragraph and runs on a clock called the Loan Approval Period.
How the Florida contract sets it up
- The loan you'll apply for. The contract states the loan type (FHA, VA, Conventional or other), the loan amount or percentage of the price, fixed or adjustable rate, the term and a rate cap. You must apply for that loan.
- The application deadline. You apply within a set number of days after the contract's Effective Date, 5 days if the blank is left empty. These are calendar days, weekends included.
- The Loan Approval Period. This is the number of days you have to get approved, and 30 is common. On the current forms, approval only counts when the lender also has an appraisal or other valuation it finds satisfactory, if it requires one.
- Diligent effort. You must work in good faith to get the loan, which means answering the lender promptly and keeping the seller informed about the loan's progress.
Before the period ends, you send one of three written notices: you've been approved, you're cancelling, or you aren't approved yet and choose to continue.
A worked example
A buyer signs an FHA contract at $365,000 with a $10,000 deposit and a 30-day Loan Approval Period. The contract states an FHA loan of 96.5% of the price:
- Base loan: 96.5% × $365,000 = $352,225
- With the 1.75% upfront MIP financed: $352,225 × 1.0175 = $358,388.94
- Principal and interest at a 5.75% rate on a 30-year fixed: $2,091.46 a month
The deposit is 2.74% of the price ($10,000 ÷ $365,000). If the underwriter can't approve the file by day 30 and the buyer sends a cancellation notice on day 29, the full $10,000 comes back. If day 30 passes with no notice at all, the contract goes forward as a cash deal, and once the seller's 3-day window closes, that $10,000 is exposed if the loan falls through later.
What protects you most
A full pre-approval, with credit, income and assets already reviewed by an underwriter, is the best way to finish inside the period. Apply the day the contract is signed, send documents the same day they're asked for, and order the appraisal early. If the approval is running late, ask the seller for a written extension before the deadline, since a signed extension keeps the protection alive. FHA and VA buyers also have the amendatory clause, which separately protects the deposit when the appraisal comes in under the price.
The cash to close guide shows how the deposit is credited back to you at closing. To set a Loan Approval Period you can meet with room to spare, call AAA Capital Funding at 888-601-8344 before you sign the contract.