A Buyer's Guide: Review of the Financing Contingency

Obtaining money from a lender is one of the most significant barriers to homeownership. Unlike the other contingencies, there’s not much negotiation that can occur if your financing falls through–it’s quite literally a deal breaker.

By now, you should already have been pre-qualified and/or pre-approved. These are the remaining steps to obtaining a mortgage:

• Pre-qualification

• Pre-approval

• Approval of your financial situation (upon pulling your credit score and further inspecting your documents)

• Underwriter's approval of the home purchase (upon analyzing financials of both you and the property)

At this time, you'll want to start preparing for the down payment and closing costs. This may include selling stock or bonds, completing any necessary paperwork for government subsidies, grants, or loans, coordinating with aid programs, or completing the necessary steps to borrow money from your 401k.

After the financial crisis of 2008, strict financial regulations were implemented and lenders stopped handing out mortgages like candy. As a result, the amount of documentation required by lenders skyrocketed. These documents serve two purposes: First, they're verification that your financial situation qualifies you to buy the property. Second, it's proof that the money you're using as a down payment is not laundered. Specific documents required will vary by lender, but you'll likely need to have the following on hand:

• Bank statements

• Pay stubs

• Previous years' tax returns

• Brokerage account statements

• Letters from giftors or documentation for large deposits

No buyer wants to be in this situation, even though you'll get your earnest money deposit back if you've included this contingency. Your options include finding an alternate lender, or you can simply back out of the contract, improve your financial situation, and try again at a later date or with a less expensive property. Regardless of what you choose, you'll need to consult with the seller and agree on the way forward in writing.