Earnest Money is a deposit by the buyer that shows the seller that they are serious about buying a home. The earnest money is a sign of “good faith” from the buyer to the seller, because the buyer is now putting some of their money on the line to show that they will honor the contract. Here are some important factors to know when it comes to earnest money.
The earnest money is due within an agreed upon time between the buyer and seller, usually a few days after the contract is signed by both parties. The contract cannot be fully enforced until the earnest money is deposited, so as a buyer, you want to turn in the earnest money as soon as possible.
The amount of earnest money is also negotiated between the buyer & seller in the contract. It is normally a small percentage of the purchase price, like 1%. The more earnest money you offer to the seller, the more serious you look to them, so keep that in mind if you are making an offer on a property that is in high demand.
As a buyer, if you are worried about losing your earnest money, you can put your mind at ease. In most standard contracts, there are clauses that allow you to get your earnest money back in full if the deal does not go through. For example, if you find a major problem during the inspection that cannot be taken care of, you can cancel the contract and get your earnest money back.
It is also important to note that earnest money is not an extra payment that you have to make as a buyer. Once you make it to closing, the earnest money actually goes toward paying your closing costs. Try to think of it as paying a portion of your closing costs in advance instead of putting down extra money. Earnest money actually isn’t so bad if you think about it that way.
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