Can I back out if financing falls through?
Can you walk away if financing falls through — and keep your sanity (and possibly your deposit)? Read this first.
Quick answer
Yes — sometimes. If your purchase agreement includes a financing contingency (also called a mortgage financing clause or conditional financing), you can back out without penalty when your lender denies the mortgage. If there’s no contingency, you risk losing earnest money and facing legal exposure.
How financing contingencies work
A financing contingency protects the buyer when mortgage approval is required to close. It typically says: if the buyer can’t secure a loan by a deadline, they can cancel and get their deposit back. Common keywords: buyer financing contingency, mortgage contingency, conditional financing.
Key points:
- Contingency must be written in the offer.
- It has a clear deadline for loan approval.
- It requires the buyer to act in good faith (apply for loans, provide documents).
Real-world example
You make an offer on a house with a 10-day financing contingency. You apply for a mortgage and the lender denies you on day 9. You notify the seller in writing, provide the denial letter, and cancel under the contingency. You get your earnest money back.
Contrast: You waive the contingency to make your offer stronger (common in hot markets). Lender denies you after waiving the clause. The seller can keep your deposit and pursue damages because you removed your protection.
What to do if financing falls through
- Read your purchase agreement immediately.
- Get written denial from the lender — dated and signed.
- Notify the seller or listing agent in writing per the contract terms.
- If you have a contingency, request release of earnest money.
- If you waived the contingency, call a realtor or attorney — you may negotiate with the seller but legally you’re likely liable.
Actionable tip: Never assume verbal promises. Always get lender denial and send formal notice by email and registered mail where required.
Protect your earnest money
Earnest money disputes often come down to documentation. Keep everything: loan applications, emails, denial letters. If you followed the contingency and acted in good faith, a neutral escrow officer or court will usually return your funds.
Negotiation tactics when financing fails
- Offer a short extension to keep the contract alive while you shop alternative lenders.
- Propose a modified closing date or a lower price if you can bring more cash.
- Ask seller to accept a backup buyer — trade flexibility for deposit return.
These moves position you as a willing buyer, not a liability. Smart negotiation preserves relationships and can salvage a purchase.
Why work with a local expert
A local realtor knows standard contract language, common lender timelines, and how sellers respond in your market. I handle these fights every week — protecting deposits, negotiating extensions, and finding backup financing fast.
If you’re worried about financing or want an offer that protects you while staying competitive, I can help. Contact Tony Sousa at tony@sousasells.ca or 416-477-2620. Visit https://www.sousasells.ca for fast local advice.
Keywords: back out if financing falls through, financing contingency, mortgage denial, buyer financing contingency, earnest money, conditional financing, real estate offers and negotiation.
