If financing falls through for a home buyer, what happens to the earnest money deposit?

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If financing falls through for a home buyer, what happens to the earnest money deposit?

I’m selling home with purchase agreement that has finance contingency. Found out today buyer switched jobs during finance process and may be denied the loan due to reduction in hours worked weekly from 40 to 38. Since it appears financing will fall through due to buyer’s actions, is it reasonable to think I can keep earnest money. I’ve already fixed items from inspection report the buyer asked for

Asked on September 3, 2015 under Real Estate Law, Indiana

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

You could only keep the earnest money if it appears the buyer did not have some reasonable grounds, external to the home purchase or mortgage, for the switch i.e. if it looks like he took the reduction in order to try to manufacture a failed a failed contingency and escape the loan. On the other hand, if this was a reasonable change for unrelated reasons e.g. better commute or hours more possibility of career advancement, even if there is a short term step backwards etc., then you most likely have to give back the earnest money the buyer's obligation is to try to go through with the sale in good faith, not to put his life 100% on hold, pass up good career moves, or otherwise take steps detrimental to himself.


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