I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. Call (800) 239-1103.
The mortgage contingency removal is one of the most consequential steps in a California home purchase — and one of the most misunderstood. Removing your loan contingency means giving up the right to back out of the purchase and receive your earnest money back if your loan falls through. Understanding when and how to do this is critical in California’s competitive market.
What Is the Loan Contingency in California?
The California Association of Realtors (CAR) purchase contract includes a standard loan contingency (also called a financing contingency) that gives the buyer a specified number of days to obtain loan approval. If the loan is denied during that period, the buyer can cancel and recover their earnest money deposit. The standard period is 17 days from acceptance, though this is negotiable.
Active vs. Passive Contingency Removal
Active removal: The buyer signs and delivers a Contingency Removal form (CR) to the seller affirmatively removing the loan contingency. This is the standard approach in competitive markets where sellers want certainty.
Passive removal: If the buyer does not remove the contingency by the deadline, the seller can issue a Notice to Buyer to Perform (NBP). If the buyer does not then remove within 2 days, the seller can cancel the contract.
When Should I Remove My Loan Contingency?
Remove only when you have solid confirmation from your lender that the loan is on track. Specifically:
- Underwriting has issued a conditional approval
- All conditions are routine (updated bank statements, explanation letters — nothing structural)
- The appraisal has come in at or above purchase price
- Your lender has confirmed no major hurdles remain
Do not remove the loan contingency based on a pre-approval alone. Pre-approval is not the same as underwriting approval. A lender who issues a pre-approval letter does not guarantee they will fund — underwriting can uncover issues the pre-approval process missed.
Appraisal Contingency vs. Loan Contingency
These are separate contingencies on the CAR form. In competitive California markets, buyers sometimes waive the appraisal contingency but keep the loan contingency. If the appraisal comes in low and you waive the appraisal contingency, you must make up the difference in cash or find a lender willing to fund the higher amount. Waiving both is a significant risk that should only be considered with a fully pre-underwritten file.
What Happens If My Loan Falls Through After Removing Contingencies?
If you’ve removed your loan contingency and your loan subsequently falls through, you lose your earnest money deposit — typically 1–3% of the purchase price in California. On a $1.5M purchase, that’s $15,000–$45,000 at risk. This is why pre-underwriting matters so much: when DiVita Home Finance pre-underwrites a file before an offer is submitted, the loan contingency removal is backed by actual underwriter sign-off — not just a pre-approval letter.
Competitive Market Strategy: What to Know
In competitive Marin County, Bay Area, and Southern California markets, sellers frequently ask buyers to shorten or waive contingency periods. The right approach:
- Get fully pre-underwritten before writing the offer — so contingency removal is a formality, not a leap of faith
- Shorten the contingency period (10–14 days instead of 17) only if your lender can confirm underwriting that fast
- Never waive the loan contingency entirely unless you are confident you can close without it — or are prepared to lose your deposit
Frequently Asked Questions
What is the standard loan contingency period in California?
The standard loan contingency period on the CAR purchase contract is 17 days from acceptance. However, this is negotiable — in competitive markets, buyers often shorten this to 10–14 days to make their offer more attractive. You should only shorten the contingency period if your lender can genuinely complete underwriting in that timeframe. DiVita Home Finance can typically issue conditional approval within 7–10 business days for fully documented files.
What happens to my earnest money if I cancel before removing contingencies?
If you cancel within the contingency period and have not yet removed your loan contingency, you are generally entitled to a full refund of your earnest money deposit. The contingency exists specifically to protect your deposit if financing falls through. Once you remove the contingency, that protection ends — a cancellation after removal typically means the seller can claim your deposit as liquidated damages.
Is it ever safe to waive the loan contingency entirely?
Only if your file has been fully pre-underwritten — meaning an actual underwriter has reviewed your income, assets, and credit — and the property type carries no unusual financing risk. Even then, you’re accepting the risk that something changes between pre-underwriting and final approval (job change, rate spike affecting qualification, property issue). DiVita Home Finance advises buyers to shorten the contingency period rather than waive it entirely unless there are very specific competitive circumstances.
What is a Notice to Buyer to Perform in California?
A Notice to Buyer to Perform (NBP) is a form the seller can deliver if the buyer has not removed a contingency by its deadline. Once received, the buyer has 2 days to either remove the contingency or the seller can cancel the contract. Sellers issue NBPs when they believe the buyer is stalling or when they have a backup offer they want to pursue. Having your lender ready to issue confirmation quickly is the best defense against an NBP situation.
Learn about mortgage pre-approval in California | California Closing Costs Guide 2026
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | Licensed since 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
