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What Is Earnest Money
The earnest money deposit is an important part of the home buying process. It tells the sellers you are a committed buyer and also helps to fund your down payment.
When do you pay earnest money and who gets it?
In most cases after your offer is accepted you give your deposit to the title company. In some states, your real estate agent will hold the deposit for you once your write up an offer and then if/when the offer is accepted deliver to title company. After turning over the deposit the funds will be held in an escrow until the finals stages of the home sale. Once everything is ready the funds are released from escrow and applied to your down payment.
Can you get your earnest money back?
If the deal falls through, a small cancellation fee is usually taken out of the deposit, but the remainder remains in escrow. Whoever holds the deposit determines whether you should get the money back under the terms of the purchase agreement. Make sure that the purchase agreement covers how a refund is handled.
How much earnest money should you put down?
The amount you'll pay will depend on a few factors, such as policies and limitations in your state, the current real estate market, and what the seller requires. In a real estate market where homes aren't selling quickly, the seller may only require 1% or less for the earnest money deposit. In markets where demand is high, the seller may ask for a higher deposit, perhaps as much as 2-3%. You can sometimes win a bid if you give the seller a large deposit. In fact, the seller may be willing to come down in price a little if you make a bigger deposit.