An important part of the home buying process is the earnest money deposit. This action tells the seller that you are a committed buyer and it helps fund your down payment. Sellers rarely will accept offers without deposits. In simple terms you are telling the seller that you are acting in good faith and the deposit reflects that.
If everything goes as planned and the seller accepts your offer then the earnest money deposit will go toward the down payment and closing costs.
If you void the contract within the terms of the contract, the deposit is returned.
How much will my earnest money deposit be?
There is no specified requirement for a deposit. The amount of your deposit is one of many terms of an offer, the higher the deposit, the more appealing to the seller. In a market where homes aren’t selling quickly, the deposit might be less than it would in a competitive market. In the DC Metropolitan market, the deposits are generally between 2-5% of the sales price.
In short, this is a way to tell the seller you are serious about buying their home.
Who holds your earnest money deposit?
After your offer is accepted and you have signed the purchase agreement than you give your earnest money deposit to the title company according to the terms of the contract, usually within 3-5 days. After the deposit is handed over to the appropriate party, the funds will be held in an escrow account until the final stages of the home sale. After everything is finalized, the funds are released from escrow and applied to your down payment.
If the deal falls through, will I get my earnest money back?
The terms of the purchase agreement will determine whether you will get the money back. The purchase agreement should cover how refunds are handled, this will be something you work out with your real estate broker. If you exercise a contingency to cancel the contract or the seller fails to perform their part of the deal, you should get your deposit back.
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