Which begs the question: if the funding fails, do you get that deposit back?

In most cases, yes, that is, if you take some precautions. Here’s how to protect your deposit during the home loan process.

Mortgage pre-approval

It’s best to know if you can get a loan — and how much —before you start looking for a house. That alone could help you protect your serious money.

Here’s how it works: You approach a lender and explain that you’re ready to go looking for a home. The lender asks you for details about your finances, usually copies of your pay stubs, tax returns, etc.

The lender then offers an amount they are willing to lend to buy a house. This process is known as mortgage pre-approval.

Getting pre-approved for a loan will help you choose a home that is within your price range. This way, you won’t put money on a house only to find the bank is unwilling to lend you enough to buy the house.

Contingency financing

Another way to protect your deposit is to include a financing possibility in your real estate contract. Basically, this means that the purchase of this property depends first on obtaining a loan. If a loan cannot be secured, you will not buy the house and can get your deposit back.

A real estate lawyer can help you draft a contract with contingencies that protect you and your deposit, says Scott Browder, Broker in Charge at Wilkinson ERA Real Estate in Charlotte, North Carolina.

If there is no contingency, you are out of luck and the seller will be able to keep that money serious.

The lender assessment process

Another place where things get complicated is the lender appraisal process. Your bank may have said that you are qualified to take out a loan large enough to cover the cost of the house you want to buy, but to make sure their money is safe, the bank will send an expert called an appraiser to the house to assess its value.

If the bank assessor believes that the house is not worth as much or more than the agreed asking price, the bank may not approve such a large loan, even if you have been pre-approved.

If this happens, there are several options: The seller can push for another appraisal, which will hopefully increase the amount the bank is willing to lend. A buyer can pay a higher deposit. If either option is manageable, you’ve saved your money!

If neither of the two options is possible and you need to back out of the deal, you may still be able to keep that serious money if your funding contingency indicates that you need a loan of a certain amount to buy the house. This way, if your loan amount is insufficient, you can reduce your losses. and keep your money serious.

How to protect your down payment

If your loan is large enough to cover the costs, you should be ready, right? Well, generally, Browder said. But even with a pre-approved loan, a buyer can still be denied financing as the closing date approaches, especially if they are undergoing major financial changes such as a loss of employment or a decline in their income. credit rating.

Browder is quick to warn his clients not to make any major purchases or take any drastic measures that could affect their credit score between the time of mortgage pre-approval and the closing of the real estate transaction.

“There’s a last credit check right before closing,” Browder says, “so no buying furniture or anything for that matter!”

That final credit check could cause the late-game funding to fail. Again, if you have a contingency in place that covers a failed loan, you should get your deposit back. But if the contingency is not there, you will lose that money.