The earnest money deposit is the cash you offer to essentially stake claim to the property of your dreams and is one of the most important and misunderstood parts of the home-buying process. Don’t watch it go up in smoke.
Depending on your local market, you can expect to put down at least 1% of the home’s purchase price as earnest money. An earnest money deposit tells a seller you are serious about closing. Without earnest money, you could theoretically make offers on multiple homes, essentially taking them off the market until you decide which one you like best but in our market…we only contract on one home at a time.
Don’t worry, the seller isn’t going to run off with your cash. It remains in an escrow account or with your closing attorney until the sale closes. And, if everything goes off without a hitch, that earnest money is put toward your down payment and closing costs. So there’s nothing to lose, right?
Probably not, except these scenarios where your earnest money could end being forfeited to the seller.
You ignored the timeline outlined in the contract
I strongly recommend you be pre-approved (not pre-qualified) prior to you starting the process. Your contract usually sets out a specific time frame in which you’ll need to secure financing, get the home inspections, and be available for the closing. Generally speaking, as long as you’ve made a good-faith effort to adhere to the timeline, sellers will grant a reasonable extension if a lender drags his feet or there are other extenuating circumstances that delay things.
However, in some cases sellers may include a “time is of the essence” clause in the contract. It means the closing date for the sale is binding. If you can’t make it to close for any reason, you’ve breached the contract and could lose your deposit.
Your contract will contain all of the important dates, if there’s anything you don’t quite understand…don’t hesitate to ask your Realtor® to explain your contract to your satisfaction, that’s why we’re here, to make the transaction as smooth as possible.
