What Is a Contingency? Mortgage, Funding, and Appraisal Contingencies Explained
Once you sign a NYC purchase contract and wire your 10% deposit into escrow, walking away is expensive. A contingency is the contractual escape hatch: a defined condition that, if unmet, lets you cancel and get your deposit back. Understanding which ones you have — and which you've waived — is the difference between a bad month and a six-figure loss.
The mortgage contingency
The broadest and most common protection. If your lender denies your loan application within the contingency period (typically 30–45 days), you may cancel and recover your deposit.
Key mechanics:
You must apply promptly and in good faith — usually within a few business days of contract signing. Sitting on your application can void the protection.
You must supply requested documents diligently. A denial caused by your own non-cooperation generally doesn't count.
Once you receive a loan commitment, the contingency is typically satisfied and expires. What happens after that matters enormously (see below).
The seller usually has the right to extend the period or to cancel if you can't obtain commitment in time.
The funding contingency (the one buyers forget to ask for)
A standard mortgage contingency protects you until commitment. But commitments contain conditions, and lenders occasionally fail to fund even after issuing one — a job loss, a building issue discovered late, or a lender's own problem. Without a funding contingency, you are contractually obligated to close with cash you don't have; your deposit is at risk.
Not all sellers grant it, and it isn't in every standard form. Ask your attorney to request it, especially in new development and in any deal where closing is far out.
The appraisal contingency
Separate from financing. If the appraisal comes in below the contract price, your lender lends against the lower value, creating a cash gap. An appraisal contingency lets you renegotiate or cancel.
In practice, NYC appraisal contingencies are less common than in other markets — many contracts fold appraisal risk into the mortgage contingency (if a low appraisal causes denial, you're covered) or leave it with the buyer entirely. Confirm with your attorney which structure your contract uses. (See our separate post on what to do when an appraisal comes in low.)
Other conditions worth knowing
Board approval: In co-ops, board rejection is a standard condition — if the board turns your buyer down through no bad faith of yours, the deposit is returned. Verify your contract says so.
Inspection: In NYC apartments, inspections usually happen before contract, so there's rarely an inspection contingency. Townhouse deals sometimes include one, though pre-contract inspection is still the norm.
Sale of your current home: Rarely accepted in NYC. Plan around it.
When waiving makes sense — and what it costs
In competitive bidding, waiving the mortgage contingency is the classic escalation. It's genuinely persuasive to sellers because it removes their biggest risk. Consider it only when:
You could close all-cash if financing collapsed, or
You have a rock-solid commitment path and substantial liquid reserves, and
Your attorney has explained the exact exposure in writing.
The exposure is your full 10% deposit — $200,000 on a $2M purchase. That's not a theoretical risk; deals do fail after commitment.
Middle-ground alternatives: a shortened contingency period (21 days instead of 45), a contingency capped at a specific loan amount lower than you actually need, or waiving the appraisal piece while keeping financing protection. These give sellers most of the comfort at a fraction of your risk.
The practical rule
Never decide contingency posture in a bidding war text thread. Decide it in advance with your attorney: know your maximum acceptable risk, know your cash fallback, and instruct your agent accordingly before offers start flying.
This article is for general informational purposes only and does not constitute legal or financial advice. Contract terms control; consult a licensed New York real estate attorney before signing. As of August 2026.
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