Contingent Financing Clause Law and Legal Definition

This is a clause in a contract that specifies the buyer can back out of the contract if reasonable financing is unavailable to the buyer. The clause adds risk for the seller because, the buyer, if cannot secure financing, can back out of the contract without incurring any penalties. Sellers can protect themselves at the outset by requiring the buyer to prove his or her creditworthiness before signing a contract. Buyers can easily obtain a mortgage prequalification letter or preapproval letter to show that they are a good risk.