Earnest Money Information for Home Buyers
Earnest money deposits are an inevitable part of the home buying experience. If you've put an offer down on a home and that offer has been accepted, then you must give an earnest money check to the escrow company. Knowing what earnest money is and how it is used in the home buying process can help you be prepared to buy your own Georgetown home. Here's what you need to know.
What is an Earnest Money Deposit?
An earnest money deposit is a check written by the buyer to the seller after the seller has accepted an offer on their home. The earnest money deposit is held in an escrow account until the escrow period closes, at which time the earnest money deposit is rolled into the down payment on the house.
If the home buyer breaks the home purchase contract midway through the escrow process, then the earnest money deposit may be given to the seller. This is an incentive to the buyer not to cancel the contract unless it's absolutely necessary, and is also a show of good faith that the buyer really does intend to purchase the house.
How Much is the Earnest Money Deposit?
Earnest money can vary depending on the cost of the house and the area where the home is being purchased. The earnest money deposit can be negotiated, but typically, it's about 1% or 2% of the price of the house. Buyers who are very serious about purchasing a home in a competitive environment may be able to convince a seller to accept their offer by offering more money for earnest money.
When Do You Pay Earnest Money?
The earnest money check is written to the seller as soon as they have accepted the offer on the home. This kicks off the escrow process because the deposit is held in the escrow account until the home purchase is finalized or canceled.
Can You Cancel the Home Purchase Without Losing Earnest Money?
Home purchase contracts have clauses called contingencies, which enable the home buyer to back out of the contract without losing their earnest money. Although most home purchase contracts have multiple contingencies listed, the type of contingencies may vary from one purchase contract to another, depending on the needs of the buyer. Some common home buying contingencies include:
- Financing contingency. The financing contingency enables the home buyer to cancel the contract if they aren't able to get financing for the purchase of the home.
- Appraisal contingency. This contingency applies only if the home does not appraise for an amount that is equal to or higher than the offer on the home.
- Home inspection contingency. If the home inspection turns up big problems with the property, this contingency enables the buyer to renegotiate or cancel the offer.
Contingencies are designed to protect the home buyer. Sometimes, home buyers waive contingencies in order to make their offer more attractive. This is especially common among people who are purchasing homes in markets where there are many motivated buyers and few homes for purchase.
Contact Your Real Estate Professional
Earnest money deposits can be confusing to people who are unfamiliar with the home buying process. The best way to navigate the process of making an offer and writing an earnest money check is to work with a real estate professional. Your real estate agent can help you negotiate an offer that will stand out among other offers.