NYC Real Estate: Why a Mortgage Contingency (and Funding Contingency) Matters

Buying an apartment in New York City can feel like navigating a maze — especially when financing is involved. One of the most critical protections for buyers is the mortgage contingency clause, and equally important, a funding contingency in the event the bank cannot approve the building.

What Is a Mortgage Contingency?

A mortgage contingency is a clause in the contract that allows a buyer to cancel the deal and recover their deposit if their lender ultimately declines their loan — despite the buyer making a good-faith effort to obtain financing.

In a market as complex as NYC, this is a major safeguard. Even the most qualified buyers can run into issues, from low appraisals to sudden changes in lending guidelines. Without this protection, a buyer risks losing their deposit (typically 10% of the purchase price) if financing falls through.

Why the Building Matters as Much as the Buyer

In NYC, your financial approval isn’t the only thing that matters — the building also needs to be approved by your bank. Lenders underwrite both you and the property.

A building might be rejected for reasons completely unrelated to your own creditworthiness, such as:

• High percentage of sponsor-owned units
• Low owner-occupancy rates
• Pending litigation
• Poor financials or excessive arrears
• Structural or management issues

If the bank’s underwriters won’t approve the building, they won’t fund the loan — even if your personal loan approval was previously issued.

Why a Funding Contingency Is Critical

Many NYC contracts state that the mortgage contingency only applies if the borrower is denied. However, buyers often discover late in the process that their lender refuses to fund because the building doesn’t meet the bank’s internal criteria.

A funding contingency closes this gap — it protects the buyer if the bank ultimately cannot fund due to a building denial. Without this provision, a buyer could technically lose their deposit even though the reason for the denial was completely outside their control.

The Bottom Line

While all-cash offers may dominate headlines, most NYC buyers rely on financing — and in a city where every building has its quirks, a strong mortgage and funding contingency can mean the difference between a safe deal and a costly mistake.

Always make sure your attorney reviews the contract carefully and negotiates a contingency that protects you both personally and in case the bank does not approve the building.