Mortgage Loan Purchase Agreement 101: Everything You Need To Know

A mortgage is simply a loan taken from the lender for financing a home purchase. Data suggests that nearly 44% of U.S. consumers have a mortgage as of 2020. When you buy or sell a home, apartment, or invest in a real estate property with a mortgage loan, you’ll need a purchase agreement for the sale to occur. 

What is a Mortgage Loan Purchase Agreement in Real Estate?

Every time a house is sold and the ownership is transferred from one person to another, a formal contract takes place between a buyer and the seller. In legal terms, this contract is known as a real estate purchase agreement. 

A purchase agreement defines the terms and conditions of the transaction and legally binds a buyer and a seller. Formed to safeguard both parties from potential legal or financial trouble.   

Who Prepares a Mortgage Loan Purchase Agreement?

Commonly, a buyer’s real estate agent will prepare an authentic purchase agreement through a law firm. Most real estate agents now use a prepared template of the purchase agreement and fill in the basic information about the buyer, seller, property, and other specific details.

The buyer will officially propose the conditions of the agreement to the seller with their offered price, which the seller is entitled to agree, reject, or negotiate on the terms. The negotiations can be carried out until both parties are on the same page and agree to sign the purchase agreement.

The parties are ‘under contract’ only after they both agree to the terms and conditions of the purchase agreement and have it signed.     

What Does a Mortgage Loan Purchase Agreement Contain?

Not every purchase agreement needs to have the same particulars, but there are some common details that every agreement generally includes. 

  • Buyer and seller information
  • Property details
  • Pricing details 
  • Financing details 
  • Fixtures and appliances included/excluded in the sale
  • Closing and possession dates
  • Earnest money deposit 
  • Closing costs 
  • Conditions that can terminate a contract
  • Contingencies 

Understanding the Components of a Mortgage Loan Purchase Agreement 

Most people look at it as a regular process, but a purchase agreement is much of a bigger deal. It protects both parties under the contract and ensures a fair transaction. So It’s important to understand every component of a purchase agreement:    

1. Basic details of buyer and seller 

Full name of the particular buyer and seller under the contract with their contact information.

2. Property details

The proper address and necessary information to identify the accurate location of the property.    

3. Pricing details

The agreed-upon purchase price of the property along with the deposit and other additional costs.

4. Financing details

The financing section of the agreement will include the details about how one tends to pay for the particular property. A buyer can opt from multiple finance options such as a mortgage loan from a lender, will assume the existing seller’s mortgage, or use the seller finance option.  

5. Fixtures and appliances included/excluded in the sale

This section includes information about any household appliances or fixtures attached to the property while making the purchase. 

6. Closing and possession dates

This is where the date of official title transfer is mentioned along with the date when a buyer will receive the keys to the house and can take possession of the property.   

7. Earnest money deposit amount

To commit a seller towards purchasing their property a buyer will pay some amount in the form of an earnest money deposit. This assures a seller that a buyer is willing to stick with the agreement until the closing process. 

If a buyer backs out before closing for a reason that isn’t included in the agreement, he loses the earnest money and the seller gets to keep it. The buyer can get their deposit back if they back out for a reason mentioned in the agreement.  

8. Closing costs

Both parties need to pay certain kinds of fees and costs at the time of closing. The closing costs for buyers can be around 3% to 6% of the purchase price, whereas sellers’ closing costs can be a little higher.

The total closing costs for each party are dependent upon the final negotiation of the contract. Closing costs include the agent commission, appraisal and inspection fees, lender’s fees, taxes, insurance, etc.  

9. Conditions that can terminate the agreement

This part of the agreement specifies the conditions under which the purchase agreement can be terminated. For example, if a seller fails to deliver a clear title; then the buyer can terminate the purchase agreement.    

10. Contingencies

Any specific repairs to be done or any essential inspections that must be performed according to the conditions of the property before selling it.

Contingencies in the purchase agreement can be included on both the buyer and the seller’s sides. It is important to understand all the contingencies included in the purchase agreement.

Common contingencies a purchase agreement includes are:

a. Financing contingency:

A sale is contingent on the buyer’s ability to obtain finance, it protects the buyer if somehow they fail to secure a mortgage. It may take several months for a buyer to close on their loan. The contract can get delayed or if your purchase agreement has a mortgage financing contingency.

b. Inspection contingency:

The inspection contingency allows the buyer to back out of the contract if they aren’t satisfied with the assessment of a professional home inspector. 

Even if you have done a pre-listing inspection of your property through a professional inspector’s assessment, some buyers may request their own inspections. The intention could be to request you to complete or compensate for the repairs before the closing. 

c. Appraisal contingency:

Appraisal contingency means that the property is entitled to appraise at a specified value that is equal to or higher than the buyer agreed to pay.

d. Home sale contingency

A purchase is contingent on the ability of a buyer to sell their current home.

11. Signatures

At the end of a mortgage loan purchase agreement, the buyer and seller need to put their signatures to finalize the transaction. 

Can Someone Cancel a Real Estate Purchase Agreement?

You must back out of the real estate purchase before signing an agreement. One can be penalized to back out for reasons that aren’t mentioned in the agreement when you are “under contract”.  

So when signing an agreement, make sure that it contains all the information about the conditions that can terminate a contract.


Both parties must agree to each condition of the purchase agreement and sign it to be called under contract. The purchase agreement is formed to protect both buyers and sellers. It ensures a smooth transaction and process of title transfer. 

Before you sign the purchase agreement, it is very important to understand every component of the agreement to avoid legal and financial inconveniences in the future.