Earnest Money: The Rundown
Spring is in the air. You are shopping the housing market and you find the home of your dreams. You decide to make an offer and your realtor let’s you know that you need to submit an earnest money deposit with the offer. What’s an earnest money deposit, you may ask? Let’s talk about it.
Earnest money, in a nutshell, lets the seller know that you are a serious buyer. Sellers are much more hesitant about accepting a contract without an earnest money deposit because if the buyer decides to back out at the last minute they don’t have as much to lose. Let me give you an example: Buyers who put down an earnest money deposit are basically telling the seller, “I now have some skin in the game. I want your house and I am willing to write a $1,000 check to prove it.” If the contract falls through because the buyer backs out at the last minute, the seller gets to keep the earnest money. Buyers will find that it is hard to get a contract accepted without putting any earnest money down.
Does the Earnest Money deposit count towards the down payment?
Yes, it does! Earnest money is not extra money buyers’ pay to sellers to get their contract accepted. It counts towards the cost of the house when the contract moves to closing and will count towards the down payment.
Does Earnest Money have to be actual money?
No, it does not. Though cash is definitely the common form of earnest money, it can technically be considered anything of value. If a buyer wants to place his ski boat down as earnest money, he is free to do so as long as the seller feels like said ski boat is something of value. The same could be said for a motorcycle, a car, etc.
Do I have to submit an earnest money deposit to buy a home?
Technically no, but you will find it much harder to get an offer accepted without one. It is not impossible, and there are situations that will allow you to forgo an earnest money deposit, but generally that will be a much tougher situation to get what you want. If there are multiple offers on a home that you want, without earnest money you your chances are slim to none.