Earnest money - Money put down by a potential buyer to show that he or she is serious about purchasing the home it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.Earnest money is typically held in an escrow account of the real estate agent and deposited once an offer has been accepted by both parties.
Be certain to read your home purchase agreement to determine what your options are regarding the treatment of your earnest money deposit in the event of a cancellation or other condition.
If the buyer defaults on the sales contract in many cases the buyer will have to forfeit their earnest money.
If purchasing a FSBO property, make sure the earnest money check is made out to the title company and not the seller.
If possible obtain a copy of the check for your mortgage broker, the lender will need a copy!
In Lien Theory states such as Texas, they use title companies, owned by Real Estate Attorneys to close real estate transactions. The title company in this case would be the one to hold the earnest money in the escrow account until closing.
If you obtain 100% financing, your earnest money will be used towards your closing costs.
Earnest Money is never distributed to the seller until settlement. It is held by the real estate broker, or in states where it is customary to hire the services of attorneys for real estate transactions, in the seller attorney's escrow account, only to be disbursed to the seller, along with the remainder of the proceeds, at closing. Typical Earnest Money is between 5% to 10% of the purchase price. However, any other amount can be negotiated.
A good purchase contract always stipulates that the purchase agreement is contingent upon the homebuyer's successful procurement of a mortgage. In the case the home buyer applied for and was denied financing, the Earnest Money is promptly returned to the buyer.
The deposit you give a seller with an offer to purchase is sometimes called a binder, a deposit, or earnest money. The way your deposit is handled depends on the laws in your state, but there are some basic guidelines that are followed everywhere in the U.S.
At the time of closing on a property, earnest money is disbursed as directed by the buyer usually credited toward the selling price of the property. If for some reason the transaction does not close, the funds can be disbursed to either the buyer or seller, depending on the reason the closing did occur.
Earnest money amounts differ depending on the seller and the sellers realtor. They may also ask for a larger earnest deposit if it looks like the buyer may take some time to close the mortgage transaction. This is an incentive for the seller to not take other offers.
