Simply put, earnest money is a deposit that is put down to show that you’re serious about purchasing a home. It is typically from $1,000 to $5,000 depending on the price of the home and the wishes of the sellers. In exchange for the earnest money, the sellers will take their home off the market and it will be listed as “pending.”
Earnest money goes into an escrow account, usually with the chosen title company, until the day of closing. At closing, this money is subtracted from the total owed and can be contributed towards closing costs.
Lenders do not consider earnest money as part of a down payment. The required percentage of down payment from a mortgage company is due at closing, while earnest money is due up front. But the earnest money can be used for expenses required to complete the closing.
When entering into a purchase agreement, there may be some contingencies. There are situations that are agreed upon where you can walk away from a contract and still get the earnest money refunded back: if there is an appraisal contingency and the appraised value is lower than the sales price; if the lender denies the loan for any reason; if the inspection period shows unsatisfactory or expensive repairs needed. However, if any other terms of the purchase agreement are broken, then the sellers can keep the earnest money.
A qualified real estate agent can help explain in detail a purchase contract so that all is understood before signing and being committed to something unaffordable. Our agents at Whippet Properties of Florida are experienced in all aspects of listing and purchasing property and are willing to assist in any way!
Learn more about Closing Costs on our Buyer Resources page.