Massachusetts Real Estate License Practice Test

What does a financing clause typically entail in a purchase and sale agreement?

1. Terms for appraisal and inspection

2. Conditions under which a mortgage can be obtained

3. Timeframe for construction completion

4. Requirements for home insurance

The correct answer is: Conditions under which a mortgage can be obtained

A financing clause in a purchase and sale agreement specifically outlines the conditions under which a buyer can obtain a mortgage to finance their home purchase. This clause may include details about the type of financing the buyer intends to secure, the amount of the loan, and any other stipulations related to the financing process. This ensures that both the buyer and seller understand the financial prerequisites that must be met for the sale to proceed. The financing clause is critical because it helps protect the seller by stipulating that the sale is contingent upon the buyer securing adequate funding. If the buyer fails to obtain the necessary financing within the specified timeframe, they may have the right to back out of the deal without penalty. This clarity is essential for both parties to avoid potential disputes regarding the completion of the sale. Other choices, like terms for appraisal and inspection, relate more directly to the property condition and valuation, while the timeframe for construction completion pertains to new builds or renovations, and requirements for home insurance focus on the buyer’s obligations regarding property protection. These are important aspects of a real estate transaction but do not specifically define what a financing clause entails.