What You Need to Know About Earnest Money

rawpixel-com-558596-unsplashAn earnest money deposit is a huge part of the home-buying process. It can help get you the house you

With earnest money, you’re telling the seller that you’re serious and committed to buying their house. Without it, you risk losing your dream home to someone who provided earnest money.

Earnest money does more than just show your good faith in a transaction; it also helps to fund your down payment. If everything goes as planned, the funds used for your deposit will go toward other closing costs and your down payment.

Declaring your commitment to the seller with earnest money lets them know you mean business, so it’s important that you really understand what it is.

Here are a few things you need to know:

How big of a deposit should you offer? 

The amount you should pay depends on other factors, such as the current market and what the seller is asking. A good amount to expect, though, is about 5-10% of the entire listed price of the home. Earnest money amounts can range from 1% to 10% of the home purchase price, depending on what type of home you’re looking at. The bigger the purchase price, the bigger your earnest money deposit needs to be.

The real estate market for the particular house you’re looking at also has a lot to do with the amount you need to consider putting down. Sellers will most likely ask for more in markets where the demand is higher than in markets where the houses aren’t selling as quickly.

When do you pay and where does it go? 

After the seller accepts your offer and you sign the purchase agreement, you’ll need to pay your deposit. A real estate attorney or title company will hold

your earnest money in an escrow account until closing. The funds will be released from escrow and applied to your down payment and closing costs once the home sale is in the final stages.

Is earnest money refundable?

As your realtor we will keep an eye on the deadlines to make sure we don’t put your deposits at risk. If we do need to cancel a contract we’ll make sure to do it before the deadline.

There are a lot of factors that go into purchasing property, so it’s necessary to understand how failed contingencies will affect you and the seller. Earnest money can really alter the way the seller sees your offer, so it’s good to pay attention to all of these details during the home-buying process.

If you have any questions about buying or selling a home, feel free to reach out.

My team and I are experts in the Miami real estate market. Give us a call at 305-329-7744, and we’ll be happy to answer any questions.