New homebuyers are sometimes surprised—and not pleasantly—by the amount of cash that they need to have on hand to purchase their house. If you’re planning on buying a house this year, then the best thing that you can do is to figure out ahead of time what that cash amount will be, so you can be sure to have it on hand. You’re going to need cash to fix and/or furnish the home anyway, so make sure that you plan ahead so you’re not surprised at closing.
There is of course your down payment; we’ve talked about that in the past. And a lot of your other fees can actually be rolled into your mortgage so you don’t have to pay them all at closing. But one expense you’ll need to take into consideration is something called an earnest money deposit.
An earnest money deposit is an agreed-upon amount of money that a homebuyer gives to the home seller to show that your offer is in fact a serious one, that you actually do plan to follow through. This deposit indicates to the seller that you do have funds available, and it holds your offer while you secure your mortgage loan.
Earnest money deposits are a safeguard for the seller: they act as a barrier to buyers who aren’t serious. You won’t actually be paying the money to the seller, but rather it goes to an escrow company that will hold the money until the sale goes through.
There’s no hard-and-fast rule as to how much earnest deposit you need to put down. It cannot be a frivolous amount (for example, $100) but it also doesn’t have to be a fortune. Generally the amount shows the seller that you’re serious about your offer on the house, so you can expect it to be between one and three percent of the sale price.
Your contract will indicate what happens to the earnest money in case the deal falls through along the way. You probably won’t get your deposit back if you pull out for some reason that’s not included in your contract, but if you decline to move forward for a reason covered by the real estate contract, you’ll be able to recoup your earnest money deposit.
At Avrus Financial and Mortgage, we’ve helped thousands of people understand the intricate financing that goes into buying a new home, and we can help you, too.
Why not ask us how… today?
