Earnest Money is traditionally a 1 – 3% deposit, of the purchase price of the home. It can be more or less of the purchase price. Earnest money shows the seller(s) that you are making a good faith effort to do what you said you are going to do – Purchase their home!
INCREASING YOUR DEPOSIT
Home sellers are looking for the highest and BEST offer. And best doesn’t always mean the highest price. By increasing your Earnest Money deposit, the sellers see that you
A. Are a serious and motivated buyer that has the financial capabilities to purchase their home.
B. Aren’t likely to walk away a few days before closing
C. That you have at least a portion of your said downpayment to finalize the purchase at closing.
In a nutshell, the larger the Earnest Money deposit, the more favorable your offer may look to the seller.
Your money (if you are using Escrow) is held in a safe holding account with your chosen Escrow provider. This is a neutral 3rd party to the transaction that holds funds between the buyer and seller, until the sale is final. At the end of the transaction your deposit goes towards your closing costs, down payment or additional debts that you owe upon purchasing the home. Your earnest money is NOT added on to the purchase price of the home.
What if we decide after the home inspection that we don’t want to purchase the home?
You get your Earnest Money back! No loss to you what-so-ever – if you decide after further investigating, that this isn’t the best investment or home for you. Notification is provided to the seller and we move on!
What if I can’t obtain financing?
This one is a real bummer – if you’ve gotten approved with a local lender, you shouldn’t face this predicament. However if we have a financing contingency that hasn’t been waived, then you get all of your earnest money back.
What if the house burns down a day before we purchase? (yikes!) What then?
You get your earnest money back! The home has to be in the same condition we saw it in when the offer was written and you have to receive clear title for the property.
COMMON QUESTIONS CONT.
I’m purchasing using a VA loan or Zero down AND my Closing Costs are paid by the seller! What happens to the earnest money if it isn’t used?
First off – congratulations! Secondly, your earnest money will be refunded to you at closing. Well done.
Do I have to have Earnest Money?
Yes – you have to have some form of an Earnest Money deposit. It could be as little as a dollar, with that said, I doubt the seller would accept that! It’s best to have at least 1% of the purchase price of the home.
What if I wake up the day before closing and decide that I don’t want to buy it?
Well, this is one of the few circumstances that you would lose your earnest money. The seller (and you!) have taken time, energy and resources to sell you the home. If after you (the buyer) have satisfied all of the home sale contingencies, the seller would rightfully receive your earnest money for having taken the home off the market to sell to you.