NWMLS Form 22A (Financing Addendum) is the standard form used to incorporate a financing contingency into a Washington residential purchase. Form 22A specifies:
These parameters define the scope of the buyer's financing obligation. The contingency is conditioned on obtaining a loan meeting ALL the specified terms — not just any financing.
If the buyer is unable to obtain financing meeting the specified terms despite a good-faith effort, the buyer may terminate the transaction and recover their earnest money in full, provided they do so within the contingency period.
"Good faith effort" is critical. A buyer who:
...has NOT made a good faith effort and cannot invoke the financing contingency protection.
The financing contingency interacts with the appraisal in an important way. If the property appraises below the purchase price, the lender will typically fund only the LTV ratio based on the appraised value, not the contract price. NWMLS Form 22AA (Appraisal Addendum) addresses this separately — it gives the buyer the right to terminate if the property appraises below the purchase price.
Without Form 22AA, the financing contingency alone may not protect a buyer from being required to make up an appraisal gap with additional cash (because a loan at the lower appraised value might still technically satisfy the Form 22A parameters).
In competitive markets (common in Seattle and other hot Washington markets), buyers sometimes waive financing contingencies to make their offers more attractive. Brokers must advise buyers of the risks of waiving contingencies. A buyer who waives financing protection and then cannot close due to a loan denial risks losing their earnest money. Documenting that the buyer was informed of this risk in writing is good practice for the broker.
Real-world example: A Bellevue buyer offers $750,000 on a home using Form 22A with a 30-year conventional loan at a maximum rate of 7%. After contract execution, the buyer buys a new car on credit, dropping her credit score from 760 to 680. The lender denies the loan. She claims the financing contingency protects her. The seller's agent points out that her deliberate financial decision after contract execution caused the denial — this was not a good-faith financing failure. The earnest money is disputed.
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Quiz Questions:
Q1. A Washington buyer's financing contingency (Form 22A) specifies a conventional loan of $600,000 at a maximum interest rate of 6.75%. The day before closing, interest rates have risen to 7.1%. The buyer terminates and demands return of earnest money. Which statement is most accurate?
A) The buyer cannot terminate; interest rate fluctuations are market risks buyers accept at contract signing B) The buyer may terminate and recover earnest money because the available rate exceeds the maximum specified in Form 22A, and the buyer made a good-faith effort to obtain financing C) The seller can refuse the termination if the buyer could find any lender offering 6.75% or below D) The buyer must close at the higher rate; Form 22A only protects against total loan denial
Answer: B — The financing contingency covers inability to obtain a loan meeting ALL the specified parameters, including the maximum rate. A rate above the contractual maximum is a qualifying basis for termination as long as the buyer made a good-faith effort to obtain financing.
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Q2. A Washington buyer with a financing contingency quits their job two weeks before closing "to reduce stress." The lender denies the loan due to loss of income. The buyer claims the financing contingency protects them. Which analysis is correct?
A) The financing contingency fully protects the buyer; the reason for denial doesn't matter B) The financing contingency does not protect the buyer because quitting the job was a voluntary action that caused the financing failure; good faith was not exercised C) The buyer is protected if they can show they are looking for new employment D) The financing contingency applies automatically to any loan denial regardless of cause
Answer: B — The financing contingency requires a good-faith effort to obtain financing. Voluntarily quitting employment after contract execution knowing it would jeopardize loan approval is the opposite of good faith. The buyer created the financing failure through their own deliberate choice.
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Q3. A Washington property appraises at $480,000 but the purchase price is $510,000. The buyer has a Form 22A financing contingency but did NOT include Form 22AA (Appraisal Addendum). What is the buyer's likely situation?
A) The buyer is protected by Form 22A because the lender will decline to fund the full purchase price B) The buyer may be required to cover the $30,000 appraisal gap with additional cash or renegotiate; Form 22A alone may not protect against appraisal shortfalls C) The seller must automatically reduce the price to the appraised value D) The buyer can terminate and recover earnest money because the appraisal constitutes a financing failure under Form 22A
Answer: B — Without Form 22AA, the buyer may not have a right to terminate based solely on an appraisal gap. The lender might still fund the loan at the lower appraised value, and that loan might technically meet Form 22A's parameters. The buyer would then need to bring additional cash to cover the gap or negotiate a price reduction. Form 22AA specifically addresses this scenario and should be included when the buyer wants appraisal protection.
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Q4. A Washington buyer's agent fails to advise her client about the risks of waiving the financing contingency in a competitive offer situation. The client waives the contingency at the agent's suggestion, the loan falls through, and the buyer loses $25,000 in earnest money. What is the agent's likely exposure?
A) None, because the buyer voluntarily agreed to waive the contingency B) Potential liability for failing to adequately advise the buyer about the risks of waiving a financing contingency; brokers have a duty of reasonable care and diligence C) None, because competitive market conditions justified the waiver D) The agent is liable only if the loan denial was the agent's fault
Answer: B — Brokers in Washington owe clients the duty of reasonable care and diligence, which includes advising them about the risks and consequences of decisions like waiving contingencies. An agent who suggests or recommends waiving a financing contingency without explaining the earnest money forfeiture risk may be liable if that risk materializes.
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Q5. NWMLS Form 22AA (Appraisal Addendum) protects a buyer by:
A) Guaranteeing the lender will fund the full purchase price regardless of appraisal B) Giving the buyer the right to terminate and recover earnest money if the property appraises below the purchase price C) Requiring the seller to reduce the price to match any appraisal below the contract price D) Waiving the financing contingency if the appraisal comes in above the purchase price
Answer: B — Form 22AA gives the buyer the specific right to terminate the agreement and recover earnest money if the property appraises below the purchase price. Without this addendum, a low appraisal may not constitute a sufficient basis for termination under the financing contingency alone.