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Let's Have a Chat About Earnest Money


If you are a first-time homebuyer, there are many new terms to learn. As you are working with your agent to write a purchase offer on a home, the term “Earnest Money” may come up. This is an important term to understand when you are purchasing a home.


An accepted purchase offer includes an earnest money deposit, which helps the Seller understand that you are “earnest” in your offer and not just shopping around. Its name describes it very well!


The earnest money deposit will generally be used toward the eventual down payment or other closing costs, the check is usually cashed and held in an escrow account throughout the transaction. Earnest money deposits vary from 1-3% of the purchase price of the home.


Why is Earnest Money important?

As mentioned earlier, an earnest money deposit assures the seller that you are serious about purchasing the property. Without such a requirement, buyers might be able to “shop around” and make offers, tying up the Seller’s interest. Earnest money requires a show of commitment from the buyers.


If there are no hiccups during the transaction, the earnest money is eventually utilized as part of the loan funding/closing process. In essence, earnest money is simply paying a portion of the down payment upfront.


Sometimes, problems arise during an escrow. In most instances, a buyer is protected by contingencies to protect their deposit in such a situation (such as appraisal contingency, inspection contingency or loan contingency.) Rely on your Realtor’s advice to protect your deposit during the process by utilizing contingencies as appropriate for your transaction.


I’d be happy to answer any of your questions about the home buying process. It’s my specialty to help folks like you buy homes safely. In the meantime, check out my Tips for Buyers section on my website.

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