First-time home buyers often have a lot of questions when it comes to the process of buying a house, and one thing people may wonder about is earnest money. If you are new to this and have no clue what earnest money is, here are three things you should know about it as you prepare to buy a house.
It Is Used To Demonstrate Serious Interest
When you purchase a home, a down payment is needed to secure the loan; however, earnest money is required to prove your serious interest in buying the home. Without this requirement, anyone could put an offer on a house, even if they had no intentions of buying the house. This would cause the house sale to be tied up, which means the sale would be delayed for no reason at all. Because of this, you will have to put some money down when you write an offer on the house you want to buy.
The Amount Can Vary
There is no set rule on how much earnest money is, but it is usually between 1% to 2% of the purchase price. If the house you are buying is priced at $200,000, you may need to put at least $2,000 down as your earnest money. You can talk to your real estate agent about this, though, if you are interested in finding out exactly how much you will need for this.
What Happens To The Money Depends On What Happens With The Deal
There are three things that can happen with the earnest money you put down, and what happens to it will depend on what happens with the sale of this house. Here are the three things that could occur:
- The money could be placed towards your down payment on the loan – If the deal goes through, this money will simply reduce the amount of down payment your lender will require, because it will go towards this.
- The money could be refunded to you – If something happens on the seller's end of the deal that prevents him or her from selling you the house, you will get this money back.
- The seller gets to keep the money – If you back out of the deal, you will lose this money. The seller will get to keep the money for the hassles he or she went through.
If you want more information about homes for sale and are ready to buy one, contact a real estate agent or broker today.