5 Important Things To Understand About Earnest Money When Buying A Home
One thing your real estate agent will talk to you about as you prepare to make an offer on a home is the amount of money you would like to offer as the earnest money in the deal. If you are new to the home-buying process, you might have questions about earnest money and what it is, and here are five important things to know that will help you understand more about earnest money.
What it is
Earnest money is a phrase used in real estate that refers to a deposit a buyer puts down when writing an offer. Earnest money is almost always a necessity for a person who wants to buy a house in a competitive market.
Why it is required
The purpose of earnest money is basically to show seriousness in a deal. If money is not put down down at the time a buyer writes an offer, buyers might simply write offers with no intentions of following through with making the purchases. To make sure a buyer is serious about a purchase, he or she will offer money with the written offer.
How much you need
A big question people often have is how much they should put down as the earnest money in the deal, and there really is no set answer for this. Some agents will tell you that $500 or $1,000 is enough, while other agents may recommend a percentage of the price of the house, such as 1% of the purchase price. While putting down earnest money is important, the amount you put down is not always a huge factor in the deal.
Where it goes
When you submit the offer and the earnest money, the money will be in the form of a check, and nothing will happen to the money until you and the seller reach an agreement on the deal. Once this occurs, the real estate agency will place the check in a bank account, called an escrow account, and you will receive credit for this money when you close on the deal.
Ways to protect this money
If you back out of buying the house for a valid, legal reason, you can get the money back. To do this, you would have to protect yourself by adding the right contingencies to the contract you write up to buy the house.
Earnest money is an important part of buying a house, and you can talk to a real estate agent if you have further questions about it.