Signing earnest money and then being left without a mortgage can cost you the deposit. A well-drafted clause protects you if the bank says no.
Buying & Selling · Updated October 2026 · 5 min read
The classic problem: you sign an earnest money contract and hand over the deposit, but then the bank denies your mortgage. Do you lose the money? It depends on what the contract says.
With penitential earnest money (the most common), if the buyer withdraws they lose the deposit. Not being granted the mortgage is not, by default, an excuse to recover it.
It is agreed that, if the buyer does not obtain financing within a set period and conditions, the contract is terminated and the deposit is returned. For it to work, the clause must:
Coordinating the earnest money with your mortgage study avoids surprises. We review and draft the clause before you sign.
With penitential earnest money, by default yes. You only recover the deposit if the contract includes a financing-condition clause that provides for it. That is why drafting it well is key.
By agreeing a clause that terminates the contract and returns the earnest money if you don't obtain the mortgage within the agreed term and conditions, proving the bank's denial.
The amount and terms of the mortgage sought, the deadline to obtain it, how many banks must be approached and the obligation to prove the refusal in writing in order to recover the deposit.
It depends on the wording. If the clause does not require a minimum number of applications and you prove the refusal in time, yes; if it is due to information you concealed, the seller may object.
A reasonable period is 30 to 60 days from signing the arras. Too short is risky; too long may not be accepted by the seller. We tailor it to your case.
We draft the financing clause so you don't lose the deposit if the bank denies the loan.
