What Is Earnest Money? | American Family Insurance

Earnest money, or good faith money, is an upfront deposit that a buyer applies to the purchase of a home when delivering an initial “offer to purchase” ... FindanAgent ContactUs SignIn Createanaccount> Accesspolicydetails24/7 Choosefromeasyoptionstopayyourbill ViewyourProofofInsurancecardfromanywhere Stayinformedwithalerts MakeaPayment Payingyourbillonlineisquick,easyandsecure. Insurance Bundling Learnhoweasyitistosaveonyourinsurancebybundlingyourpolicies,likehomeandauto! Discounts Discoverallthewaysyoucansaveonyourinsurance. 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HomeBuyingClosingCostsCalculator LandlordGuide WhattoBringWhenBuyingaCar LifeInsuranceCalculator GetanAutoQuote AutoInsuranceCoverages MyAccount Claims FindtheRightCoverageforYourCar GetaQuote AtHome WhatIsEarnestMoney? Earnestmoney,orgoodfaithmoney,isanupfrontdepositthatabuyerappliestothepurchaseofahomewhendeliveringaninitial“offertopurchase”contracttoaseller.Earnestmoneyforahouseorrealestatepurchaseplaysaspecialrole,soit’sespeciallyimportanttounderstandtherulesthattypicallygovernthesetypesoffinancialtransactions.We’llexplorewhetheritisrequired,whenit’sdueandshedsomelightonthewaysearnestmoneyisusedtohelpsecureahomeintoday’srealestatemarket. Resource EasilyCalculateYourClosingCosts Areyourclosingcostscoveredwhenit’stimetobuy?Withpotentiallythousandsofdollarsontheline,you’llwanttobesureyouhaveallthedetailsyouneed. TableofContents: HowDoesEarnestMoneyWork? AreEarnestMoneyDepositsRequired? HowMuchEarnestMoneyShouldIPutDownonaHouse? WhenIsEarnestMoneyDue? EarnestMoneyFactorstoConsider IsEarnestMoneyRefundable? WhenCanaSellerKeepEarnestMoney? WhenIstheBuyerAllowedaRefundoftheEarnestMoney? DoYouGettheEarnestMoneyBackAfterClosing? HowtoProtectYourEarnestMoney GainProtectionforWhatMattersMost HowDoesEarnestMoneyWork? Manypotentialhomebuyersaskwhatthepurposeofearnestmoneyisandhowexactlyitworks.Earnestmoneyworksbyofferingaportionofcashupfront—usually1-2%ofthepurchaseprice—asincentivetopullthepropertyfromthemarketandconsideryourofferexclusively.Earnestmoneyalsoworksbyfinanciallyprotectingthesellerifthebuyerdoesnotgothroughwithpurchasingthehome,asthesellerisusuallytheonewhogetsearnestmoneyifthatoccurs. Backtotop AreEarnestMoneyDepositsRequired? Notexactly,butshoppingwithoutanearnestmoneydepositonthetablemaylimityouroptions.Sellersaremorelikelytoacceptabidwiththemostfavorablefinancialprofile—oftenthosewithearnestmoneydeposits—becausedealswithearnestpaymentshaveabetterchanceofclosingontime,andprovidegreaterassurancestotheseller. Sellersneedtheseassurancesbecausethehome’smultiplelistingservice(MLS)statususuallychangesto“undercontract”whenanoffertopurchaseisaccepted.Understandably,thatcanpushotherpossiblebuyersandtheirbrokerstoshopforpropertiesstillacceptingoffers. Ifyoufindyourselfasking,“WhatifIdon’thaveearnestmoney?”youhaveoptions.Forexample,inyouroffer,youcanrequestawaiverofearnestmoney.Haveyourrealestateagentwriteupthewaivercontractandsubmititthroughnormalchannels.Althoughit’slesslikelythesellerwillagree,theymayoptforawaiverofearnestmoneyofferwhenmarketconditionsaren’tintheirfavor. Backtotop HowMuchEarnestMoneyShouldIPutDownonaHouse? Generally,abuyerwilldeposit1%to2%ofthepurchasepriceinearnestmoney,butthatamountcanbehigherdependingonyouragreement.Itwillbeheldinanescrowaccountandappliedtotherestofyourdownpaymentatclosing.Ifyouroffertopurchaseis$250,000,yourtypicalearnestmoneyamountwouldrangefrom$2,500to$5,000.Inyouroffer,youspecifytheamountofearnestmoneythatgoesintoescrowshouldtheselleraccepttheoffer. Backtotop WhenIsEarnestMoneyDue? Earnestmoneyisusuallyduewithinthreedaysofasignedandacceptedoffer.Theearnestmoneycheckcanbewiredtoanescrowaccount,ordeliveredtotheseller’sagent.It’simportanttogetthatmoneytothesellerassoonasyourofferhasbeenaccepted.Thatway,you’llhelptolockintheagreement,shiftitsMLSstatusto“undercontract,”andtakeonestepclosertolandingthathome. Backtotop EarnestMoneyFactorstoConsider Therearealotofmarketfactorstoreviewwhenmakinganoffer,sogettingafeelforhowmuchearnestmoneyyoushouldputdowniskey.Yourrealestateagentcanrecommendthetypicalearnestmoneyamounttoofferbasedonseveralfactors.Hereareafewitemstokeepinmind: Homeprice Besurethattheearnestmoneyintheofferisadequatetoreflectasmallpercentageofthehome’saskingprice. Markettrends Dependingontheregion,homesmayonlybeonthemarketforafewdaysbeforeoffersareevenentertained.Whenhomesaregoingundercontractquickly,youmayneedtomakeyouroffermoreattractivewithabiggerearnestmoneydeposit. Yourinterestinthehome Ifyoureallywantthehome,you’llhavetoactquicklytoviewandassessthatit’srightforyou.Thenmakeyouroffer. Letyourearnestmoneydothetalking Ifyoureallywanttopurchaseagivenhome,itmaybewisetoaimhigh.Bypresentingfivepercentormoreoftheaskingpriceinearnestmoney,youmaybeabletogettheseller’sattention. Backtotop IsEarnestMoneyRefundable? Earnestmoneyisrefundableundertherightcircumstances.Ifyouroffertopurchaseincludestherulesandcontingenciesthatcarefullydefinehowandwhenearnestmoneyistobehandled,you’llhaveabetterchanceofgettingyourearnestmoneybackifanagreementisbroken.Contingenciesaffordyoutheabilitytoexitthecontractwithyourearnestmoney,usuallywhenanunforeseeneventarisesduringtheclosingprocess. Typicalcontingenciesthatallowanearnestmoneyrefund: Ifthehomefailsinspection Ifthehomedoesn’tappraisecorrectly Financingisdeniedordelayed Iftitlesearchissuesarise Backtotop WhenCanaSellerKeepEarnestMoney? Thesellermaykeeptheearnestmoneywhenthebuyerbreaksakeypartoftheagreement.It’simportanttopayparticularattentiontocontractviolationdetailssuchasbreachanddefaultingterms. Thesellerwillrequirealegitimatereasontobreakthecontract.Whenthebuyerdoesn’tmeetadeadline,likefailingtogetthehomeinspectedwithinanagreed-uponamountoftime,thesellercankeepthemoneyandnullifythecontract. Backtotop WhenIstheBuyerAllowedaRefundoftheEarnestMoney? Thebuyercanreclaimtheirearnestmoneywhenthesellerfailstodeliveronapromiseinthecontract.Iftheydon’tholduptheirendofthedeal,thebuyercanbackoutoftheagreementandwillberefundedtheearnestmoney. Supposetheselleragreedtoreplacewindowsbeforeclosingand,uponfinalinspection,thebuyerfindsthewindowswerenotreplacedaspromised.Thesellerwouldthenhavetoforfeittheearnestmoneybacktothebuyerandthecontracttopurchasemightbevoidedpendinganyotherarrangementsmadebetweenthesellerandbuyer. Forinstance,perhapsthesellerwilloffertoput$5,000inescrowtopayforthereplacementofthewindows.Ifthebuyeragrees,theycanmoveforwardandclose. Backtotop DoYouGettheEarnestMoneyBackAfterClosing? Yes,youdogetyourearnestmoneybackatclosing.Afterbeingreleasedfromescrow,earnestmoneybecomescashyouusetopurchasetheproperty.There,yourearnestmoneyistypicallyappliedtothedownpayment. Backtotop HowtoProtectYourEarnestMoney Yourearnestmoneydepositisimportant,andyoudon’twanttorisklosingit.Considertheseprecautionstoprotectyourearnestmoney. Rememberyourcontingencies Alwayskeepinmindthecontingenciesyouandthesellerputinplace.Remember,contingenciesaremeanttofinanciallyprotectbothofyou.Takethetimetolearnandunderstandwhatyouareresponsiblefor,andmakesureyou’recomfortablewiththecontingenciesputinplacethatwillallowarefundoftheearnestmoney. Writeeverythingdown Buyingyourhomeisabigfinancialinvestment,sodon’tsettleforverbalagreements.Makesureanychanges,bigorsmall,areproperlyrecordedindetailsoeveryoneisheldaccountablefortheirresponsibilities. Sticktothetimeline Delayedearnestmoneyrefundsaremostcommonlytheresultofmisseddeadlines.Whetherit’sschedulingthehomeinspectionormeetingtheclosingdate,alwayskeeptopofmindwhatyouareresponsibleforandwhenitneedstogetdone. Backtotop GainProtectionforWhatMattersMost Buyingahomemaytakealotofpatience,dedicationandresearch,butfewmilestonesinlifecanfeelasrewarding.TheeffortyouputintobuildingyourfutureshouldbematchedwiththeeffortAmericanFamilyInsuranceputsintoprotectingit.TakethenextstepinprotectingyourdreambyexploringourhomeownersinsuranceoptionsorreachouttoanAmericanFamilyInsuranceagenttogetyourquotetoday. Havemorequestionsaboutthehomebuyingprocess?Besuretocheckoutourfirst-timehomebuyersguidetolearneverythingyou’llneedtoknowfromstarttoclosingday. Howwouldyouratethisarticle? RelatedTopics: OwningAHome ,AtHome ReadyforaQuote? ZIPCodeisrequired. InvalidZIPCode. ZIPCode Car Home Renters Life RecreationalVehicle Motorcycle Condo Umbrella Business Travel ATV Snowmobile Farm&Ranch Health Product StartQuoting RelatedArticles BuyingaDuplexasYourFirstHome Searchingforyourfirsthomeisoneofthemostexcitingtimesofyourlife.Andifyouhaven’tconsideredaduplexasanoption,youcouldbemissingoutonaseriousinvestment,financialandsocialopportunity.Checkoutourtipsforbuyingaduplexasyourfirsthome. IntroducingYourselftoYourNewNeighbors Movingintoanewhomeinanewneighborhoodcanbedifficult—butitdoesn’thavetobe!Here’showyoucanintroduceyourselftoyournewneighbors,makesomenewfriendsandreducethestressofmovingyourfamily. SafetyStartswithaSmartHomeSecuritySystem Learnabouthowyourhomecanbenefitfromalltheadvancesthathavebeenmadeinsmarthomemonitoringtechnology. 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