What in the world is earnest money? Buyers often make a lot of mistakes when it comes to this intricate part
of the buying process. So, we're talking
dollar signs today for our realtor lingo series. We'll tell you what is earnest money, what is it used for, and when will you need it!
What in the world is earnest money?
Earnest money is typically 1% of the sales price that you are offering. In our market, it will be $500 if the house is under $100,000 and $1,000 or more if the house is above $100,000. Earnest money is good faith money and shows that you are serious
about purchasing the property. At the end of the day, earnest money is still your money. It does not belong to the seller unless you default on buying the house.
So how does earnest money work?
Whenever you're renting a home, you put a deposit so that you can actually get the property. Whenever you move out, you get your deposit back. Earnest money works very similarly to that. If you are moving into a house, $150,000 for example, and
you put an earnest money deposit of $1,000, then that would mean that you are serious about getting the house and they will take the house off the market. They will stop marketing it as available, and they will now make it pending sale or under
contract. Then when you actually get to closing, your earnest is money is credited back to you.
Your realtor will need your earnest money check written immediately after you're under contract. Some realtors even like to get the earnest money check at the same time as they're writing the contract. Either will work.
What does that mean?
Let's say you have a down payment of $5,000 that you have to bring to the table and you already gave $1,000 deposit as your earnest money. That $1,000 of earnest money is subtracted from the amount that you're supposed to bring to the table and
instead of bringing 5,000, you'll just bring $4,000.
Earnest money is good faith money. It is a deposit to show your serious interest in buying a property. Once you close on the house, the earnest money gets credited back to you.
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