When you find that dream home and want to show your serious intent to buy, you may come across the term, Earnest Money. It is similar to a security deposit that shows you are serious about buying the home. Triple M Mortgages can guide you and explain things to you. Let’s take a closer look at Earnest Money.
What is Earnest Money?
When the seller of a house gets a buyer and they begin a purchase agreement, the seller removes the house from the market. This is done while the transaction goes through to closing. If for some reason, the sale fails to fall through, the seller has to start all over again and re-list the house on the market. This could cause the seller to take a financial hit. Sometimes the house doesn’t pass a home inspection, and the buyer can get their deposit back as it’s usually stated in the purchase agreement.
This is where Earnest money comes in.
If the sale falls through for any reason, the home buyer gets their Earnest money returned. This also prevents the buyer from walking away after the seller takes the home off the market.
The buyer and seller sign a contract regarding the Earnest Money, outlining the conditions for the exchange and refunding an amount if applicable. The contract also makes sure the seller removes the house from the market until it’s appraised and inspected.
How Does Earnest Money Help buy a Home?
If you pay Earnest Money, you can decrease the amount you need to pay at closing. Earnest money is put directly towards your closing costs or down payment. You can also have it put towards closing costs such as property taxes or homeowners insurance.
Also known as a “good faith deposit,” Earnest money is a way of showing your serious intention to buy a house. Earnest money creates protection for the seller. The deposit can be 1% to 5% of the sale price but depends on the market in your area. It would be best to work with a real estate agent to get the right guidance and assistance. Earnest money is put towards the down payment of the buyer. It can also go towards closing costs.
Earnest money can help when you are among several buyers trying to get the same house. You won’t need as much in a slow market, but if the market is hot or there are several buyers you should have a good-sized deposit.
Many people do an Earnest payment for several reasons:
- so they can avoid mortgage insurance
- lower monthly payments
- get a better interest rate
- gives the buyer time to have a property inspection and to get more financing before closing
Do you still have questions? Triple M Mortgages is here to help you today. Feel free to call.