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I think it means you need to give them a loan commitment letter within 20 days. If your lender has issues getting it to you before the 20 days, you could always try to negotiate for an extension. If the alternative is that you have to exercise your contingency to cancel the contract, that isn't really in their interest either. Most people will be reasonable about these sorts of things.
Two Most Common Types of Financing Contingencies
The most common financing contingency is pretty straightforward, and puts the primary burden upon the buyer:
This clause states that the home BUYER has a specified number of days to apply for, and secure a firm loan commitment from a bank or other type of lender - one that has been fully underwritten. (This is NOT a pre-approval - rather, this is when the loan underwriting process has taken place.)
If the BUYER surpasses the financing deadline without terminating the contract or requesting an extension (which the seller must agree to in writing), then the BUYER has automatically waived the contingency - meaning, the buyer has just committed to producing all the funds required to purchase the home, whether the loan is ultimately approved or not.
Obviously, this type of contingency is pretty cut and dry... meaning you had better pay close attention to the calendar and make sure you are counting the days properly - business days versus calendar days.
The second most common type of financing contingency is a bit more complicated - and puts more of the burden upon the home seller:
In this scenario, the financing contingency addendum states that the SELLER has the right to terminate - but only after an agreed upon number of days passes, AND only after serving notice to the buyer that the seller “may” choose to terminate the contract at any time after delivery of such notice.
Thus, if the SELLER does not serve this notice after the specified number of days in the contingency, the financing contingency remains in place, all the way up to the date of closing. Think of this notice like the SELLER waving their arms and asking “hey... what’s up with your financing?” If the buyer has arranged financing, then they simply need to provide evidence of such, and the contingency is then satisfied. If however, the buyer does nothing after (and if) receiving this notice, then they are at risk of the home seller terminating the contract at any time.