EARNEST MONEY: Everything you need to know.
Everything that you NEED to know about Earnest Money.
EARNEST MONEY -- if you're a home buyer, you've probably heard this term before. But what is it, how much should you put down, and what happens to your earnest money? I explain everything that YOU need to know about Earnest Money.
WHAT IS EARNEST MONEY?
- Earnest money is essentially a "good faith deposit" that you want to move forward with the contract.
- It's a specific amount of money you as a buyer put forth to show good EARNEST that you will fulfill the contract!
HOW MUCH EARNEST MONEY SHOULD YOU PUT DOWN?
- There's really no "real answer" for this. In general terms, it's anywhere form 1-3% of the purchase price.
- In a hot market, the more earnest money you put forth, the more advantage you may have as a buyer since it's showing you're putting a lot on the line in order to get the house.
- What I like to do for my buyers is simply call the agent and ASK what the seller wants.
WHEN DO YOu gIVE YOUR EARNEST MONEY?
Earnest money is deposited at the time the contract goes PENDING.
It's not like when you submit earnest money, money is deposited.
WHO HOLDS ON TO THE EARNEST MONEY?
The earnest money is held by a third party company, usually an escrow company (or lawyer).
WHAT HAPPENS TO YOUR EARNEST MONEY?
There are 3 things that could happen to your earnest money...
1. The deal goes through and the earnest money goes toward the purchase of your home and the closing costs. (BEST SITUATION!)
2. The deal DOESN'T go through and you breached the contract and there's no legal reason for you to get out of the contract - then the earnest money goes to the seller. For instance, if you waived your financing contingency and couldn't get a loan - the earnest money is the "collateral" that the seller gets to keep. (WORST SITUATION!)
3. The DOESN'T go through and you breached the contract and there IS a legal reason for you to get out of the contract - then the earnest money goes back to you. For instance, if you got an inspection and your offer was contingent on an inspection, but you didn't like what the inspection had to say and couldn't come to mutual agreement with the sellers - then you have the legal right to get the earnest money back.
SHOULD I RELEASE MY EARNEST MONEY EARLY?
Especially in a hot market like Seattle, you're seeing this happen more and more.
Essentially, it's saying that NO MATTER WHAT HAPPENS - the seller will get earnest money IMMEDIATELY upon going under contract.
This can position your offer VERY competitively - but can be risky. If you're going to do this - make sure that your financing is SECURE and you're confident in the loan (if you're getting one) as well as get a pre - inspection so you can make sure the house is structurally sound.
Are you thinking about starting your home buying journey? Reach out, we can help you.