When Can a Buyer Back Out of Buying a House?

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Published July 6, 2022
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Disclosure: This article is not a substitute for legal advice. Please consult with a licensed attorney.

In an ideal world, real estate transactions would be smooth sailing for both buyers and sellers. Unfortunately, that’s not always the case. Buying a home is a major financial commitment, and a buyer may get cold feet and change their mind.

You might reach a point where you wonder, can I back out of buying a house before closing? The answer is yes — but doing so may cost you. Here’s what you need to know about when you can back out of buying a house.

Can You Back Out of Buying a House After Signing a Contract?

Yes, you can back out of buying a home — even after signing a purchase contract. However, that contract is legally binding, which means you might lose money getting out of it.

When you signed the agreement, you likely put down an earnest money deposit between 1% and 3% of the purchase price. The seller gets to keep that deposit if you back out for reasons that aren’t covered by your contract, which can cost you thousands of dollars.

But if you back out for a reason explicitly allowed by your contract — these are called contingencies — you can cancel the sale, and get your money back.

The Role of Contingencies

Contingencies give the buyer a way to terminate the contract and the sale without losing their earnest money deposit. Here are some of the more common contingencies:

  • Financing falls through. Even if you’re preapproved for a mortgage, the lender still may deny your loan application if it finds changes in your financial situation. A financing contingency lets the buyer out of the deal if they can’t secure financing.
  • The home inspection reveals trouble. A property may appear to be in great shape — until the home inspection uncovers some serious flaw or damage that needs repairs. If significant problems are found, this contingency typically lets the buyer renegotiate the price with the seller or walk away from the deal.
  • The appraised value is below the sale price. If the home appraisal comes in below the purchase price, the lender might not approve a loan large enough for the buyer to complete the transaction. An appraisal contingency lets the buyer off the hook without losing their deposit.
  • You can’t sell your existing home. This contingency gives buyers time to sell their current home. If they can’t do so by the due date, the contingency allows them to walk away.
  • There’s a dispute over the title. If the title search reveals ownership disputes or liens on the property, a title contingency lets the buyer back out without penalty.

When Is the Best Time To Back Out of Buying a House?

The best time to back out of buying a house is before you’ve signed a purchase agreement. If you’ve already signed one, you can still back out and keep your deposit if a contingency in the contract is met. This is why it’s important for buyers to make sure the purchase agreement includes appropriate contingencies before signing.

FAQ: Can a Buyer Back Out of a Purchase Agreement?

Here are answers to some frequently asked questions about backing out of a home purchase.

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