First Stop 4 Home Loans

So, what is it?  How much will it cost me?  When do I pay it?  Is this money in addition to all the costs on my good faith?  All very good questions that I plan to answer.  If you’ve owned a home in the past, this term isn’t new to you, though the information may still be important.  As a first time buyer, this information is VERY important to know.  Let’s start by saying “earnest money” should have been something that was explained to you by your Realtor or lender in the first meeting.  If not, then it’s time to move on.  Here’s why.  Earnest money is money you will need prior to closing on a house.  It’s real money you need to have saved or gifted.  It’s not just play money that goes with a purchase agreement.

Here’s the answer to those questions above.  It’s a check you write that is presented with your offer to show the seller you’re “earnest” in buying their home.  The amount can vary from $500 and up, the most common amount being $1000 or $1500.  You DO need to have this money in your account.  Once your purchase agreement is accepted and all contingencies have been cleared – i.e. inspection on the home passes and you plan to move forward — the check is cashed.  Here is the crucial thing.  If you’re doing a first time buyer program that requires you to have some of your own funds into the transaction, this money CAN be applied as such.  This means that the money does need to be yours, not a gift and not a deposit from somewhere else that can’t be traced.  The earnest money IS part of your down payment.  It will come off the bottom line at closing for the funds you need assuming we, the lender, can prove it cleared your bank account.

Can you get it back if you bail?  Ha, good question.  If you choose not to buy due to an unacceptable inspection, then yes, you can.  If you cannot secure financing, more often than not, this would also qualify to get it back.  If you don’t perform in a timely manner on the purchase agreement, back out or otherwise, I wouldn’t count on getting it back.  Plus, the seller could sue for damages — like time off the market.  Working with a knowledgeable Realtor will help you understand the ins and outs of getting it back if necessary.

There you have it — earnest money.  When going out to look at homes, don’t leave home without it — your checkbook, that is!  You never know when you will come upon the house you want to make an offer on.

Tags: earnest money, first house, gift, purchase agreement

This entry was posted on Tuesday, February 9th, 2010 at 1:16 am by Darcy and is filed under First Time Buyers, Posts, The Home Buying Process, Tips & Tidbits. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.