· By Juan Murray
Why Does Mortgage Financing Fall Through? A Boston Guide
Mortgage financing falls through when a buyer's lender denies or withdraws final loan approval after the contract is signed, often because of a low appraisal, a change in the buyer's finances, or a gap between pre-qualification and full underwriting. In Massachusetts, what happens next depends largely on whether the buyer properly exercised the financing contingency in the Purchase and Sale Agreement before its deadline.
Why does mortgage financing fall through before closing?
Common causes are an appraisal below the contract price, a change in the buyer's financial situation between pre-approval and closing, and a buyer who never had full underwriting approval. For the appraisal side, see what to do when the appraisal comes in low. For the contract that governs the contingency, see the Massachusetts Purchase and Sale Agreement.
If the appraisal comes in under the contract price, the lender bases the loan on the lower value, and the buyer has to bring more cash or renegotiate. A buyer's finances can also shift before closing: a new car loan, a job change, a missed payment, or a lower credit score can lead an underwriter to pull back an approval that looked solid weeks earlier. And a pre-qualification letter is not a fully underwritten approval; the gap between the two is where many deals fail.
Key Takeaways
- A low appraisal, a change in the buyer's finances, or a buyer with only a pre-qualification are the common reasons financing falls through.
- If the buyer's financing contingency was valid and properly exercised by its deadline, the deposit is typically returned.
- If the contingency expired, was waived or wasn't triggered correctly, a liquidated damages clause usually lets the seller keep the deposit.
- A 5% total deposit is described as typical; at Roslindale's 12-month median of $720,000, that would be $36,000.
- Call your attorney first, then check on backup offers before you relist.
What Does the Financing Contingency in a Massachusetts P&S Control?
A financing contingency lets a buyer cancel and recover the deposit if they can't obtain a mortgage commitment by a specific date. It generally protects the buyer until the lender issues a firm loan commitment, as long as the buyer acts by the dates in the contract. In Massachusetts, this clause determines most of what happens to the deal, and to the deposit, when a loan doesn't come through.
If the contract says time is of the essence, the dates are generally enforced as written. A buyer who learns of a denial but notifies the seller after the contingency deadline may have lost the protection the clause was meant to provide.
If the contingency was valid and properly exercised, the buyer is not in default. They used a protection they negotiated, and the deposit is typically returned. The deal ends. It's frustrating, but it's clean.
What Happens to the Deposit When Financing Falls Through?
It depends on whether the buyer had a valid, timely financing contingency when the deal collapsed. If the contingency was still active and properly invoked, the buyer generally gets the deposit back. If it had expired, been waived, or wasn't triggered correctly, a liquidated damages clause in the Purchase and Sale Agreement usually lets the seller keep the deposit. In NRT New England v. Moncure, as summarized by a Massachusetts real estate law firm, the Appeals Court upheld a seller keeping a 5% deposit after the buyer lost financing and couldn't close.
Massachusetts deposits typically come in two stages: a smaller deposit with the Offer to Purchase and a larger one at the Purchase and Sale Agreement. The same firm describes a 5% total as typical. As an example: at Roslindale's 12-month median sale price of $720,000 (MLS PIN via Repliers, September 2025 through August 2026), 5% would be $36,000 sitting in escrow.
The common form of the liquidated damages clause makes the deposit the seller's sole remedy if the buyer defaults outside a valid contingency, so the seller keeps the deposit but can't separately sue for more. If the contract lacks that clause, other remedies may exist, depending on the exact language. A seller's own attorney, not the listing agent, should determine where the seller legally stands.
| Scenario | Contingency Status | Typical Deposit Outcome |
|---|---|---|
| Buyer applied on time, was denied, and gave written notice by the deadline | Valid and properly exercised | Returned to buyer |
| Commitment date passed with no written notice | Expired | Seller generally keeps deposit under liquidated damages |
| Buyer waived the financing contingency to strengthen the offer | Waived | Seller generally keeps deposit |
| Appraisal came in low and buyer can't cover the gap | Depends on appraisal contingency language | Varies; often negotiated |
How Should Sellers Respond in the First Week After a Deal Collapses?
- Contact your attorney first. Have them review the contingency dates and notice language before making assumptions about the deposit.
- Check on backup offers. If the home drew multiple offers, a strong second-place buyer may still be interested.
- Reassess pricing before relisting. If the market has shifted since the original listing, revisit the comparative market analysis.
- Keep the "back on market" status in perspective. Financing failures happen for reasons unrelated to the house, and the listing can say so if accurate.
- Review disclosures again. If material facts changed, or repairs were completed while under agreement, make sure the listing reflects the current condition.
How can sellers reduce the risk of financing falling through again?
Start by vetting the next buyer's financing before accepting an offer. Ask for a fully underwritten pre-approval, not just a pre-qualification. Ask whether the lender regularly closes Massachusetts loans. Look at the buyer's down payment relative to the loan amount. And don't accept the highest offer automatically if its financing is weaker; a slightly lower offer with stronger financing may be more likely to close.
FAQ
Why does mortgage financing fall through in Boston?
Common causes are a low appraisal, a change in the buyer's finances between pre-approval and closing, and reliance on a pre-qualification instead of a fully underwritten loan commitment.
Do I get to keep the deposit if the buyer's financing falls through?
It depends on whether the buyer's financing contingency was still valid and properly exercised. If it expired or wasn't validly triggered, a liquidated damages clause usually lets the seller keep the deposit. If the contingency was valid, the deposit typically goes back to the buyer.
How long does a buyer have to notify me if their financing falls through?
As long as the Purchase and Sale Agreement allows. The buyer must act by the dates written into the contract, and if it says time is of the essence, missing a deadline can forfeit the contingency's protection.
Can I sue a buyer for more than the deposit if their financing falls through?
Generally not, if the contract has a standard liquidated damages clause making the deposit the sole remedy. Without that clause, other remedies may be available, but they require an attorney's review of the specific language.
How quickly can I relist my Boston home after a financing collapse?
Once the seller's attorney confirms the contract is terminated and how the deposit will be handled. Over the past year, the median home in Jamaica Plain sold in 22 days on market and in Roslindale in 21 (MLS PIN via Repliers, September 2025 through August 2026), though results vary by property, price, and season.
Should I accept a backup offer instead of relisting from scratch?
A strong backup offer can save time, since that buyer already knows the property. Whether it beats relisting depends on how that buyer's financing compares with what a fresh round of offers might bring.
The bottom line: when a buyer's financing falls through, the financing contingency's status and deadlines decide what happens to the deposit, so have your attorney review the contract before you relist.
Sources
- Vetstein Law Group, Massachusetts Real Estate Law Blog, liquidated damages and financing (discussing NRT New England v. Moncure): https://massrealestatelawblog.com/tag/massachusetts-liquidated-damages/
- MLS Property Information Network (MLS PIN) via Repliers, September 2025 through August 2026 (ZIPs 02130 and 02131)
Have questions? Let's connect.
About Juan Murray
Juan Murray is a Boston broker associate with more than 30 years of experience helping buyers, sellers, and investors across Greater Boston, personally leading every transaction from the first conversation through closing.
RE/MAX Real Estate Center · (978) 581-0801
Equal Housing Opportunity. Juan Murray is licensed as a Broker in Massachusetts, regulated by the Massachusetts Board of Registration of Real Estate Brokers and Salespersons. This article is general information only and does not constitute legal, tax, or financial advice. Confirm your specific costs and obligations with your closing agent, tax advisor, or lender.
