What Is Earnest Money
When you're buying a house, you will put down a good faith deposit. That is earnest money. This shows the seller the seriousness of the buyer. If you are under contract, you will put down some money as a good faith deposit, so that the seller will then take the house off the market and agree to move forward working with you.
This money is fully refundable if you cancel based on the contingencies set forth in the contract. There are four main reasons you would cancel the contract: the home inspection, the appraisal, the financing and the homeowner's association documents.
If you find something in the home inspection that you cannot live with- you can cancel. If you aren't able to get financing because maybe the interest rates have gone way up and you no longer can afford that monthly payment, or maybe you lost your job and you can no longer qualify- you can cancel. If the property does not appraise for the contract price, or higher hopefully- you can cancel. If when reading the homeowner's association documents, you find something you just cannot live with- you can cancel.
These are all good reasons to cancel, as long as you're within the dates of your contract, you are entitled to your full earnest money deposit back.
However, if you remove all the contingencies: you have done your home inspections, you've gotten your appraisal, you've agreed to the homeowner documents and you've gotten the green light from your lender. and you just decide, "I like the other home down the street better" so you want to cancel.
The seller is entitled to keep your entire earnest money deposit because it would be considered damages, paid to the seller because you are in breach of contract.
The more money you put down shows the seller how serious you are, as a buyer. That's great, but it also means you stand to lose more if you are in breach of contract.
If you are working with me, I never want to lose your earnest money. I will guide you every step of the way, to make sure that you are happy with the results of each step in the process. You will know the exact dates that every contingency is going to expire, so we don't put your money in jeopardy.
Once you get to the closing table, your EMD will be applied to the closing costs. This money is not in addition to your closing costs, but part of them.
Another common question about earnest money deposit is, when are you required to pay them?
Based on the contract ratification date, you typically have three days ( typically negotiable) to get the earnest money deposit to the closing company. There are several ways that you can do that: by check, by wire transfer, and now many closing companies are using a very convenient and protected app.
I hope I have fully answered all of your questions about the earnest money deposit. If you want more information on buying a house feel free to fill out the contact form below.