How To Use Earnest Money When Purchasing Your Home
Updated: Apr 2
Are you considering buying a new home or lot of land? Home prices are always changing. You need funds for both the property ,closing costs and miscellaneous expenses. Earnest money is different than a downpayment. It is mainly a gesture of goodwill. Not everyone has the funds to pay for properties in full. It shows both parties are serious about the transaction. It is always important to educate yourself on rules and practices for property ownership. Here are an overview to give you a clear understanding of earnest money. What is Earnest Money If you’re thinking of buying a home, you’ll need to know about earnest money. When making an offer on a property, an earnest payment is usually requested to prove to a seller that you’re serious about buying. The definition of earnest is to show sincerity and conviction. Earnest money proves that you’re making an offer in earnest and serious about the transaction . If the buyer accepts your offer, you’ll have to hand the payment over and it is non-refundable if you change your decision. The amount varies based on location. For cities with limited housing expect to pay more for an earnest payment. The amount of the earnest payment is usually 1-3 percent of the overall cost of the property. Before buying a property, you need to have a savings fund to pay for all the fees associated with home buying.This is why it’s important to understand what you can get with your budget. This can be helpful if you’re waiting on money coming in, perhaps from inheritance,401k, a job or tax return. Earnest Money and Real Estate Earnest money is an integral part of the real estate industry. When a homeowner accepts an offer, they’re putting themselves at risk of the buyer defaulting out of the agreement.An agreement needs to be signed between the buyer and seller. This is in event the deal falls through. For example, the seller decides to keep the property or the property requires more repairs than initially reported. Vice versa if the buyer backs out earnest money is returned to the seller. If the sales goes through the earnest money is used as a downpayment or to cover closing costs. This money is kept in escrow or a title company account.Once you’ve made an offer on a home, you’ll be expected to pay off the earnest deposit in one or two days. Make sure you have the funds immediately available if an earnest payment is needed. Buying a home can be stressful. However use this article to give you some insight on earnest money so you can make an offer on your dream property.