Loan Rejected After Signing the SPA: What Happens to the Deal & Deposit

If the buyer's loan is rejected after the SPA is signed, what happens to the deal and the deposit depends entirely on the terms of the SPA — in particular, whether there is a loan (subject-to-finance) clause. If the SPA protects the buyer, the deposit is usually refunded and the agreement is cancelled without penalty. If not, the buyer risks losing the 10% deposit and the seller may claim damages. For an agent, this is the single most critical situation that can kill your deal — and with fast action, the deal can often still be saved. This guide explains what happens and the steps you should take.

Why can a loan be rejected after the SPA?

A bank's indicative approval is not a full approval. A loan can be rejected after the SPA for several reasons: the property valuation comes in lower than the purchase price, the buyer's debt-service ratio (DSR) rises, their CCRIS/CTOS record changes, they switch jobs, or income documents are incomplete. Sometimes the buyer simply applies too late. The best defence is to help buyers avoid the common financing pitfalls before they sign.

Is the deposit forfeited if the loan is rejected?

This is the most important question — and the answer depends on the SPA. Most well-drafted subsale SPAs contain a clause allowing the buyer to terminate and recover the deposit if the loan is rejected, provided the buyer applied in good faith to at least one or two banks within the stipulated period and produces written proof of rejection. If that clause is missing, or the buyer fails to meet its conditions (for example, applying late or rejecting a reasonable offer), the buyer may be treated as being in default and risks losing the deposit.

Summary: who bears what

What should an agent do when the loan is rejected?

Don't panic, and don't try to advise your client on their legal rights — that's the lawyer's job. Instead, drive the solution:

• Get the written rejection letter from the bank as soon as possible — the lawyer needs it to protect the buyer's position.

• Refer to the buyer's lawyer immediately so the notices and time periods under the SPA are complied with. Many deposits are lost because a notice deadline was missed, not because the loan was rejected.

• Try an alternative bank if still within the period — another bank may approve on a different margin.

• Discuss an extension with the seller if approval is close; this often saves the deal.

• Consider a replacement buyer if the deal is truly dead, so the seller doesn't lose time.

How to avoid this from the start

The best prevention is pre-approval before the buyer signs the SPA, and making sure the SPA contains a clear loan clause. Advise the buyer to apply early, check their DSR, and not switch jobs or take on new borrowing while the deal is in progress. Understanding the full timeline also helps — see our subsale process guide for agents.

Frequently Asked Questions

Is the deposit forfeited if the loan is rejected after the SPA?

Not necessarily. If the SPA has a loan clause and the buyer complies with its conditions, the deposit is usually refunded. Without that clause, the buyer risks losing it. The real answer depends on the SPA terms — refer to a lawyer.

How long does the buyer have to secure financing?

The SPA usually sets a loan approval period, often around 3 months, with a possible extension. The exact period is stated in the SPA.

Can the buyer switch banks after the first rejection?

Yes, as long as they are still within the loan period under the SPA. That is why acting fast and obtaining the rejection letter promptly matters.

Is the agent liable if the deal collapses over financing?

Generally no, as long as the agent did not guarantee approval or give legal advice. The agent's role is to coordinate, not to guarantee the loan.

Need to save a deal that's on the edge?

When a loan is rejected, how fast you act decides whether the deal lives or dies. Through the ASCOLAW (Tetuan Akmal Saufi & Co) Agent Partner Programme, you get a dedicated WhatsApp deal-line for live-transaction questions and a conveyancing team that moves quickly to protect your client's position. No referral fees — just speed, support and knowledge. Join the Agent Partner Programme here.

This article is for general information only and does not constitute legal advice. Every property transaction is unique. Please obtain specific advice from a licensed lawyer before acting on any part of it.

Related guides

• Subsale Process In Malaysia: A Guide For Agents

• Buying Property In Malaysia

• Common Property Transaction Legal Terms

• 7 Legal Services Real Estate Agents Need To Know