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 January 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.
We draft the financing clause so you don't lose the deposit if the bank denies the loan.
