If a buyer is unable to get financing, what must be included in their contract to terminate without penalty?

The inclusion of a Third Party Financing Addendum is essential for a buyer who may be unable to secure financing. This addendum specifically outlines the conditions under which the buyer is allowed to terminate the contract without incurring penalties if they fail to obtain the necessary financing from a third party, such as a bank or mortgage lender.

This document serves to protect the buyer's interests, as it formalizes their reliance on external financing and articulates what will happen if that financing does not come through—allowing them to withdraw from the purchase without financial repercussions. It delineates the timeline they must adhere to for securing financing and specifies any obligations they have during that period, ensuring clarity and legal protection for the buyer.

In contrast, while a Financing Contingency is also related to financing, it typically refers to the general requirement that financing be secured for the sale to proceed, without the specificity of how to navigate the termination process if financing isn't obtained. Other options, such as a Termination Addendum or Buyer Default Clause, do not focus specifically on financing, and this can limit the buyer's options for termination without penalty in the event of financing issues.