If you’re considering buying a home (before interest rates begin to rise), thought it might be helpful to give you some basic information on earnest money, so you have a better understanding of how much cash on hand you can plan on needing when getting ready to start your property search!
Most buyers today understand they need a sizeable down payment and a strong credit score to secure a conforming home loan. But you don’t want to forget to have enough cash on hand for your earnest money deposit when making an offer on a property.
Earnest money is usually handed over to the seller’s agent, to place into an escrow account for saving until the closing date, when your transaction is completed with your closing attorney. This demonstrates to the seller that you are a serious buyer and are backing your intentions to purchase with cash.
Without this, buyers could simply make offers on many homes, essentially taking them off the market, until they chose a favorite. This of course would not be good for sellers! So, sellers rarely accept offers without some early skin in the game so to speak.
There is no set amount for an earnest money deposit – it’s negotiable. Around Winston-Salem and the Triad the average amount is around the .7% of sales price amount. That means if you and the seller agree to a contracted price of $200,000, the average amount of cash you’d need for your earnest money payment would be about $1,400. However, if there are multiple bidders, the seller may ask for up to 3% of the asking price as earnest money – it varies from sale to sale. Then, assuming the sales contract goes through settlement (or closing), that $1,400 earnest money would go towards your down payment and closing costs. If the transaction does not close, there may be a nominal transaction cancellation fee or you may get it all back.
So, I encourage you to be sure your purchase agreement clearly defines the earnest money and refund process, so you know exactly what you’re getting into and there are no surprises. Remember, you can lose earnest money through default, which would happen if you did not perform according to the terms stipulated in your specific purchase and sale agreement. Make sure that you have a clear understanding of all terms and obligations before you sign, which will make for a less stressful and happier house hunting experience!
I hope you found this information helpful and thanks for stopping by Laura’s Choice! And for more tips and information, and to join the real estate conversation be sure to “Like” Laura Kubicki Realty on Facebook! Look forward to seeing you there!