Your Earnest Money is Safely Guarded
If you are a first time homebuyer about to put down a large sum of cash on a new home, you may be wondering what happens to your “earnest money” or “good-faith deposit” in the buying process. Is the money safe, secure and used only towards the purchase price of the home?
The answer is yes! Here are the details:
- Earnest Money is what you put down on the house with your offer toward the overall purchase price, which is also known as good-faith deposit.
- It is made payable to the third-party settlement agent who will hold the money (not the seller) and will be applied towards the cost of the purchase.
- It is also a sum of money to show the seriousness of your offer and your financial stability.
Your money has a three-step journey:
- Earnest Money is submitted to an escrow company along with the accepted offer/purchase and sale contract.
- Your earnest money gets credited towards the down payment or your closing costs at the time of the closing.
- You will receive your earnest money refunded back to you if there are no closing costs.
Why is a deposit required?
The money you put down on a home as a deposit towards the purchase of the home demonstrates that you are serious (earnest) about wanting to purchase this property. Often the greater the amount the more seriously the seller will take your offer.
In a competitive market, where home inventory is low and buyers are more aggressive, the more serious your offer, the better your chance of an accepted offer is when compared to other offers that the seller may receive.
Things to know:
- Your check will be cashed once your offer is accepted, so you need to have the full amount of funds available.
- Prior to the closing date, the seller’s agent, the sellers and even your agent do not have access to the deposit money. The third-party escrow company holds it safely.
- The amount of money that you put down can vary. It can depend on the terms of your loan, seller expectations and how steep your competition is.
Remember, in a competitive market, the cash you put down as earnest money shows stability and greater intent than just loan financing. If you can put 10 to 20 percent down, sellers will be more impressed with your offer than if you just put the minimum down. But rest assured that your money is secure and will go towards the purchase price.
Share This Post
|Previous Post||Next Post|