Hello from C4 Elite Real Estate Team, Coldwell Banker and Stacey Christopherson. As I was talking to a First Time Home buyer today, I was asked what upfront costs they could expect. There are a few, however, one of the most important ones is the Earnest Money.
What is Earnest Money?
Earnest Money is the portion of the down payment that the buyer delivers with an offer as evidence of good faith. When you write an offer on a home you are ready to purchase, these funds must accompany the offer. It is easiest if you can write a personal check for this, however, a money order or cashiers’ check will also work. Cash cannot be taken by your brokerage for earnest money.
If you are competing with other buyers for a home, earnest money can help improve your offer over others. The more you can deposit, shows the seller how serious you are about purchasing their home. An amount of up to 1% of the purchase price makes for reasonable earnest money. These funds are typically held in the Buyer’s Agent Brokerage in a Trust account. This trust account is insured by the FDIC and is held until closing. In some cases, it is held at a title company.
Held Until Closing
Your lender will need to be able to track the earnest money. From the checking account it is in, to the date it comes out of the account. If you do not have funds for earnest money, it can be gifted to you by a family member, however, always check with your lender before doing this.
Your earnest money is credited back to you at closing. It can be a credit towards closing costs and/or down payment. If all fees are paid, and the earnest money is not needed, the buyer may receive some portion back as cash at closing. Your lender can let you know how the earnest money will be used as your closing date gets closer.
Buyer Friendly Contract
Earnest money is refundable up until the final deadline of your purchase contract. Of course, there are stipulations to getting your earnest money back. However, your Buyer’s agent can walk you through the deadlines and what needs to happen before each one. In Utah the Purchase contract is very buyer friendly, with three deadlines protecting your earnest money, up until the financing and appraisal deadline passes.
Whether you are a First Time Home Buyer or have bought and sold may homes, earnest money is the part of every real estate purchase contract. Call us today at C4 Elite Real Estate to learn more.