How Much Do You Give For Earnest Money

vi Min Read | Sep 24, 2021

People in the real manor business absolutely love their jargon. During the domicile-buying procedure, you'll likely hear a bunch of complicated phrases tossed around like candy at a parade. Merely if you're new to it all, it can feel more than intimidating than fun.

Don't worry though. A lot of these niche terms yous won't need to memorize, which lets yous focus on agreement the big ones, likehostage coin, that tin can really make a paring in your home-buying journey if you don't have it when information technology'due south time to make an offer. And then permit'due south get crystal clear on what hostage coin is and what it means for your abode purchase.

What Is Earnest Coin?

Earnest money is similar the former storytelling cliché:Information technology's meliorate to show than tell. Yous're showing the seller that your offer on their home is sincere—or earnest—past putting money down every bit a good faith gesture to secure your offering. Typically earnest coin amounts to 1–five% of the purchase price. In return, the seller agrees to accept their domicile off the market, make it bachelor for inspections, and cease any agreed-upon repairs or provide disclosures to aid consummate the sale.

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While you wait to close on your habitation, the money is deposited into an escrow account with the seller'southward broker, championship company or escrow company. This account stows your cash until endmost day. So, the earnest coin is subtracted from the amount yous owe and often put toward the endmost costs. And in the event that the deal goes sour, you tin typically go your hostage coin dorsum depending on the contingencies outlined in your sales understanding. (We'll talk more than nearly this later.)

Now, earnest coin isn't technically required, merely it'due south pretty much standard these days. If there is any contest in your market at all, you'll desire to put down hostage money so that a seller volition take your offer seriously—which pretty much sums upwards the purpose of earnest coin.

How Much Hostage Money Should I Put Down?

The short answer is that you need one–v% of the price that you and the seller agreed upon. The longer answer begins with: "It depends."

Because information technology really does depend on a number of factors—mostly related to where you are. In some markets, you'll need a fixed corporeality—similar $1,000 or $5,000. In other communities, the focus is on the pct. In really hot real estate markets like Silicon Valley, it'due south non uncommon to meet six-figure earnest money deposits.

Because that's not chump modify, talk with your real estate amanuensis about how much earnest money they advise to assist you play by the rules in your surface area.

Is Hostage Money the Aforementioned as a Downward Payment?

Now, before we move on, let's make sure we're clear that your earnest coin isnot your down payment. Your down payment is completely separate. It's what you pay up front to secure your domicile's financing­—and it should be 10–twenty% of the purchase price of the habitation with a 15-year stock-still-charge per unit mortgage. Think of it this way: earnest money secures your offer and a downwards payment secures your financing.

That means when you're calculating how much it'll cost you to purchase a house, lump your earnest money into what you plan to salve for closing costs. Earnest coin is simply due up front when you make the offer, unlike the downward payment and closing costs, which are technically due later when you close on the dwelling house.

Do I Get My Earnest Money Back Later Closing?

You may be request yourself, "Does my earnest coin get refunded?"

If everything goes the style it's supposed to, the earnest money gets folded into your endmost costs like bacon bits into pancake concoction (trust us—it's delicious). Merely yous'll need to be careful and read your contract because at that place are several means you lot could lose your earnest money deposit.

Make certain your amanuensis builds these contingencies into your contract so y'all can get back your earnest money if:

• The dwelling house doesn't go appraised at the offer corporeality. Maybe you make a $200,000 offer on a dwelling that turns out to exist worth simply $150,000.
• The home doesn't laissez passer the habitation inspection. The dwelling house could have significant structural damage or demand a new roof and you may not be able to come up to an agreement with the seller to brand the repairs.
• You can't get financing. Things happen. Your lender could alter buying or yous might encounter some other hiccup in the finance procedure.

Y'all'll also desire to pay attention to the deadlines in the contract. There will normally be a difficult engagement for closing, and your existent manor agent can really help you here. If information technology looks like it may have longer to arrange your financing than you originally thought, you may be able to renegotiate the date to keep things moving smoothly and salve that earnest coin eolith.

If you need assistance getting a preapproved for a mortgage and so you can put downwardly an offer on the home of your dreams, talk to our friends at Churchill Mortgage. They're experts at navigating the mortgage lending process, credit score or not, and will truly put you lot first.

Can a Seller Keep My Hostage Money?

While you can often go your hostage money dorsum in cases where no rules of the contract were broken, keep in mind that there may come a fourth dimension 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 utilize a risky strategy to get a leg upwardly on the competition and offer nonrefundable earnest money. That means the seller gets to go along the cash if the sale falls through for any reason. That's right. Even if a UFO flies direct from Neptune to your prospective home and beams the whole thing up into the nebulous unknown, you're out of luck. Earlier yous go for this tactic, talk to your existent manor agent about your options and make certain yous don't offer coin you can't afford to lose.

Work With a Real Estate Amanuensis

While earnest money isn't too hard to understand, there's a lot involved in purchasing a habitation that'due south probably (to say it gently) over your caput. That'south why the best way to navigate the home-buying procedure is with the guidance of a trusted professional. Ourexistent manor Endorsed Local Providers (ELP) are experts in your local market and have proven track records of excellence. They will accept you through the process pace-by-stride and make sure everything goes right.

Find an agent in your expanse today!

About the writer

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and raise their lives through personal development since 1992. Millions of people have used our financial communication through 22 books (including 12 national bestsellers) published past Ramsey Press, too as ii syndicated radio shows and 10 podcasts, which have over 17 1000000 weekly listeners. Learn More.

Source: https://www.ramseysolutions.com/real-estate/what-is-earnest-money#:~:text=Earnest%20money%20is%20like%20the,5%25%20of%20the%20purchase%20price.

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