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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Earnest Money
After completing your property hunt you would have made an offer to the seller. On accepting the offer, you will sign a sales contract with the seller with terms and contingencies.
Along with the contract as a buyer, you also have to give an earnest money deposit. But what is an earnest money deposit? In this post, let us understand what is earnest money is and how it works.
What Is Earnest Money Deposit?
An earnest deposit is money that accompanies your offer to purchase a home and shows signs of good faith that you will receive with the contract.
So essentially it is money that you are putting out there and willing to lose if you were to violate the contract.
The more money you put into it, the more serious it shows the seller that you are.
What Is The Earnest Money Deposit Amount?
The dollar amount for the earnest money is generally, dictated by the market. If it is a seller’s market the buyers need to put larger earnest money deposits at the time of the sales contract signing, hoping that it will show a stronger offer compared to the competition.
When it shifts back to the buyer’s market, you can go pretty low on the earnest money deposit.
Typically, the earnest money deposit could be anywhere between 1 to 10 percent of the purchase price obviously going higher in the seller market.
However, that is something you and your real estate agent will discuss and determine the right amount to put in as your earnest money deposit.
The dollar amount for the earnest money is generally, dictated by the market. If it is a seller’s market the buyers need to put larger earnest money deposits at the time of the sales contract signing, hoping that it will show a stronger offer compared to the competition.
When it shifts back to the buyer’s market, you can go pretty low on the earnest money deposit.
Typically, the earnest money deposit could be anywhere between 1 to 10 percent of the purchase price obviously going higher in the seller market.
However, that is something you and your real estate agent will discuss and determine the right amount to put in as your earnest money deposit.
How Does The Earnest Money Deposit Work?
As you go through your contract period, you are going to have certain inspections, checks on the home, and other opportunities that you can make sure you are buying a solid property with good bone.
When you have your home inspection after reviewing with your real estate agent, you have a certain number of days to review the information from the home inspection.
This is so that you can make sure you buy a good home with good bones. If the report says that it is not a good home, you can escape the contract within the escape period and that will allow you to receive your earnest money deposit back.
You would lose earnest money if you violate the contract. If you escape the contract during a time when it is not an escape period, such as the home inspection period, or three days period to review the home owner’s association documents.
This is the stuff that your real estate agent will review with you in great detail.
Where Does The Earnest Money Deposit go?
As long as everything goes forward with the contract and you are proceeding with closing, your earnest money deposit is going to be considered as money in the transaction.
It is going to go towards any closing cost or down payment requirements that you are supposed to meet.
For example, let’s say that your earnest money deposit is $1000. And the lender has told you that you need to bring a total of $8,000 at the closing table to cover closing costs and down payment.
Since you have put a $1000 upfront, you will only bring $7,000 at the time of closing. So your earnest money deposit if you proceed with your contract will be considered in your property purchase transaction.
Conclusion
So, the earnest money definition is that it is a deposit on the home that you want to buy. It is a sign of good faith that you are going to honor all the details on the sales contract and be compliant with all the requirements.
Ensure that you have a word with your real estate agent and review all the options so that you don’t end up losing your earnest money deposit.
