Mortgage Contingency Update Coming Sept. 1

A revision to the mortgage contingency of the PAR Agreement of Sale (Form ASR) will be released on Sept. 1, 2025. Though the structure of the contingency may make it look like a major change, the main substantive change is simply to add a third choice for the buyer to use when signaling their intent on financing to a seller.   

These changes will also be in the Standard Agreement of Sale for a Manufactured Home on Leased Land (Form ASMH), Standard Agreement for the Sale of New Construction (Form ASNC) and Standard Agreement for the Sale of Vacant Land (Form ASVL).  Paragraph numbers in this article are just for Form ASR, but the structure is the same in all Agreements. 

What’s the Change? 

For many years, a buyer has had two choices in the financing paragraph: to elect the contingency (which gave protections to a buyer who applied for a loan but could not obtain financing) or to waive the mortgage contingency (which allowed the buyer to decide whether or not to apply for a mortgage, but didn’t protect their deposit if they were unable to obtain financing). This 2025 update adds another choice that had not previously been in the form: an option for the buyer to state from the start that their intent is to buy the property without applying for financing at all. This additional option should add clarity and more clearly differentiate buyers who will or might want to pursue mortgage financing from those who will not.  

The Options 

The Buyer Financing paragraph now leads off with the buyer’s three options in subparagraph A, then identifies which of the remaining subparagraphs apply to the transaction based on that selection. Buyers would select only one of the options – there should be no scenario that lends itself to selecting more than one. 

Option 1: NOT APPLICABLE. Buyer will NOT obtain mortgage financing.  

This is the new option for 2025. Buyers should select Option 1 only when their clear intent is to pay for the property without obtaining financing. As in … they’ve already done the math, talked to their financial advisor, etc., and have decided that purchasing without financing is their best approach. This could include any number of funding sources – cash on hand, withdrawals from retirement or investment accounts, proceeds from another transaction, etc. – but it does not include making a mortgage application to a lender.  

If a buyer who was sure at the time of the offer later changes their mind and wants to apply for a mortgage loan, the best practice will be to negotiate with the seller over whether it would be acceptable to amend the contract to either use Option 2 or Option 3. A seller who relies on a buyer’s representations that they will not be obtaining financing could potentially view a mortgage application as a breach of that contract term. 

Both buyers and sellers should consider that it may be important for buyers to show some sort of proof of funds if they select Option 1, since there obviously won’t be any lender pre-approval. The PAR Buyer’s Financial Information form (Form BFI), or a similar form, could be used for that purpose. 

If Option 1 is selected, nothing after subparagraph B (default) applies. 

Option 2: WAIVED. This sale is NOT CONTINGENT on mortgage financing and Paragraph 8(H) is NOT applicable. The buyer and seller understand that the waiver of this contingency does not restrict the buyer’s right to obtain mortgage financing for the property.  

Option 2 is the same as the “WAIVED” option in the prior version. This option is best used by buyers who are confident in their ability to pay for the property but aren’t sure exactly how they want to handle the finances. For example, the buyer who says “I should have plenty of cash but want to talk to my financial advisor before deciding how to pay,” might be best served by Option 2, since it gives them the flexibility to figure out their best path and not lock into the “no financing” option right away. Remember that, however the buyer chooses to pay, if they end up not closing the transaction due to financing issues, there is no protection for their deposit. 

If Option 2 is selected, subparagraphs (B) (default) and (C)-(G) apply. This is all the same information that had previously been above the mortgage contingency box. 

Option 3: ELECTED. This sale IS CONTINGENT upon the buyer obtaining mortgage financing according to the terms outlined in Paragraph 8(H).  

This option is the same as the “ELECTED” option in the prior version. This is used when buyers know that they will need to apply for mortgage financing and provides protections for their deposit if they make a good faith effort to get the loan but get denied or have other issues outside of their control affect the lender’s ability to fund the loan. 

If Option 3 is selected, the entirety of the paragraph applies, as it always has. 

Buyer Default 

Paragraph 8(B) of the 2025 Agreement is language that has been in the Agreement for many years, but now in a more conspicuous location. Moving it up under the three financing options is meant to address two issues. First, the additional visibility should help make it clear that a buyer’s deposit may not be protected if their inability to get financing is based on the buyer’s bad behavior (e.g., misstating their income or taking steps that cause a lender to deny the loan). Second, it should make clear that a buyer who provides false financial/employment information in the transaction may be in default regardless of which option they choose. For example, an Option 1 buyer who puts false savings information on the Form BFI they give to the seller is in default the same way as an Option 3 buyer who overstates their income for a lender pre-approval. 

BONUS UPDATE – Mortgage Commitment Date 

In response to consistent member comments about the formatting of the mortgage commitment date, this has now been moved to a new row in the box with all the other information about the mortgage contingency. Hopefully, this will make it more obvious and less likely for the parties to miss. Remember that a contract without a commitment date could mean that the seller doesn’t have the right to terminate an Agreement where the buyer is unable to get financing, so make sure this is filled in for every Option 3 contract. 

DOUBLE BONUS UPDATE – Appraisal Contingency to the Agreement of Sale (Form ACA) 

A substantially revised Form ACA will also be released on Sept. 1 (a detailed article about those revisions will be published in the next few weeks). Remember that the parties can negotiate an appraisal contingency under any of the three financing options. A buyer who selects Option 2 or 3 and applies for a mortgage will almost always need an appraisal ordered by the lender, and the Agreement requires the seller to provide access to that lender-required appraiser, whether or not there’s a separate appraisal contingency. But where the buyer selects Option 1, the seller is not required to allow access to an appraiser unless there is a separate appraisal contingency.