Protecting Your Earnest Money Deposit

For most first-time homebuyers, the scariest part of buying a home isn’t the mortgage payment or the interest rate — it’s the fear of losing the deposit. That check represents months or even years of saving, and once it’s handed over, everything suddenly feels very real.

This is where contingencies come in.

A contingency is a simple protection written into your contract. Its entire job is to protect your deposit. If a contingency is still in place and something important doesn’t work out, you have the right to cancel the deal and get your money back.

Two contingencies matter more than any others for first-time buyers: the loan contingency and the appraisal contingency.

The loan contingency protects your deposit if your mortgage cannot be fully approved. Even with a pre-approval in hand, the loan still goes through underwriting, document verification, and final approval after you go under contract. During this stage, lenders can uncover issues related to income, assets, credit, or the property itself. If the loan falls apart and the loan contingency is in place, the buyer can step away without financial loss. Without it, the buyer may be forced to close or risk losing their deposit.

The appraisal contingency protects your deposit if the home does not appraise at the agreed purchase price. Lenders lend based on value, not emotion. If an appraisal comes in low, the lender may reduce the loan amount, leaving the buyer responsible for the difference. With the appraisal contingency in place, the buyer has options: renegotiate the price, challenge the appraisal, or cancel the contract safely.

For first-time buyers, these protections are critical. Most are using financing and do not have extra cash to absorb surprises. Contingencies give buyers time — time to confirm loan approval and time to confirm the home’s value before fully committing.

From my experience as a loan officer, I recommend removing the loan contingency only after we receive Clear to Close (CTC). At that point, the lender has signed off on the loan, conditions have been satisfied, and the risk of a last-minute issue is significantly reduced. Removing the loan contingency before CTC can put a buyer’s deposit at unnecessary risk.

Loan and appraisal contingencies are not technical fine print. They are the quiet safeguards that allow first-time buyers to move forward with confidence, knowing their deposit — and their future — is protected.