In your offer, you specify the amount of earnest money that goes into escrow should the seller accept the offer. Earnest money is usually due within three days of a signed and accepted offer. There are a lot of market factors to review when making an offer, so getting a feel for how much earnest money you should put down is key.
Your real estate agent can recommend the typical earnest money amount to offer based on several factors. Here are a few items to keep in mind:. Depending on the region, homes may only be on the market for a few days before offers are even entertained.
When homes are going under contract quickly, you may need to make your offer more attractive with a bigger earnest money deposit. Then make your offer. If you really want to purchase a given home, it may be wise to aim high. Earnest money is refundable under the right circumstances. Contingencies afford you the ability to exit the contract with your earnest money, usually when an unforeseen event arises during the closing process.
The seller may keep the earnest money when the buyer breaks a key part of the agreement. The seller will require a legitimate reason to break the contract. The buyer can reclaim their earnest money when the seller fails to deliver on a promise in the contract. Suppose the seller agreed to replace windows before closing and, upon final inspection, the buyer finds the windows were not replaced as promised. Make sure your agent builds these contingencies into your contract so you can get back your earnest money if:.
There will usually be a hard date for closing, and your real estate agent can really help you here. If it looks like it may take longer to arrange your financing than you originally thought, you may be able to renegotiate the date to keep things moving smoothly and save that earnest money deposit. If you need help getting a preapproved for a mortgage so you can put down an offer on the home of your dreams, talk to our friends at Churchill Mortgage.
While you can often get your earnest money back in cases where no rules of the contract were broken, keep in mind that there may come a time when you just need to walk away from the deal altogether. Something unexpected—like an accident, a divorce or a dream that causes you to rethink your entire life—could happen.
In these cases, be prepared to walk away without your earnest money. In hot markets, some buyers use a risky strategy to get a leg up on the competition and offer nonrefundable earnest money. Each of these will give you the opportunity to get your earnest money back:.
Credible can be a big help when trying to find a great interest rate. You can easily compare our partner lenders and see prequalified rates in as little as three minutes — all without leaving our platform. Advertiser Disclosure. How much earnest money to put down What happens to your earnest money deposit How contingencies protect your earnest money What is earnest money? Know the difference: Earnest money is not the same thing as a down payment. Buyers will be able to get most, if not all, of their earnest money back if they have the appropriate contingency in the sales contract.
If you want to waive contingencies, make sure you get as much assurance as possible from the lender that your loan will get approved.
The seller might be able to keep the earnest money if you are not able to complete the purchase process—including the appraisal and home inspection—according to the time period detailed in the contract.
When you make a good faith deposit to a mortgage lender, it covers some of the expected costs of the mortgage lending process and gives the lender more confidence that you will move forward with the loan.
A deposit could be several hundred dollars to cover costs of the appraisal and credit report that the bank orders. You could get a gift from a friend or family member to cover the earnest money. All of this will need to be documented with the lender, however. This is likely most successful when the real estate market is slow and the seller is in a hurry to make a deal. Most buyers want to provide as much of a down payment as possible to avoid mortgage insurance , lower their monthly payments and possibly get a better interest rate, which is why it makes sense to direct the lender to add the earnest money amount to the down payment at closing.
Bob Musinski has written about a variety of financial-related topics — including personal and business loans, credit cards and personal credit — for publications such as U. News and World Report. He has worked as an editor and reporter for multiple publications and an international wire service. You can follow him on twitter bobmusing. Select Region. United States.
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