Understanding earnest money | Mortgage | Chase.com

In most cases, earnest money acts as a deposit on the property you're looking to buy. You deliver the amount when signing the purchase agreement or the ... Skiptomaincontent Pleaseupdateyourbrowser. Wedon'tsupportthisbrowserversionanymore.Usinganupdatedversionwillhelpprotectyouraccountsandprovideabetterexperience.  Updateyourbrowser Pleaseupdateyourbrowser. Wedon'tsupportthisbrowserversionanymore.Usinganupdatedversionwillhelpprotectyouraccountsandprovideabetterexperience. Updateyourbrowser Close Startofsidemenu Home Signin Freecreditscore News&Stories OPENANACCOUNT CreditCards CheckingAccounts SavingsAccounts CDs Auto Mortgage HomeEquity InvestwithaJ.P.MorganAdvisor OnlineInvestingwithJ.P.Morgan ChaseforBusiness CommercialBanking Seeall CONNECTWITHCHASE CustomerService Givefeedback Scheduleameeting FindATM&branch AboutChase J.P.Morgan JPMorganChase&Co. MediaCenter Careers ChaseCanada SAFEAct:ChaseMortgageLoanOriginators FairLending Endofsidemenu Understandingearnestmoney Whenyoufindahomeandenterintoapurchasecontract,thesellermaywithdrawthehousefromthemarket.Earnestmoney,orgoodfaithdeposit,isasumofmoneyyouputdowntodemonstrateyourseriousnessaboutbuyingahome. Inmostcases,earnestmoneyactsasadepositonthepropertyyou'relookingtobuy.Youdelivertheamountwhensigningthepurchaseagreementorthesalescontract.Itcanalsobepartoftheoffer.Thesellerandbuyersignacontractthatdefinestheconditionsofrefundingearnestmoney. Importanceofearnestmoney Inmostcasessellerswillaskforagoodfaithdeposit.Itsafeguardstheinterestsofthesellerandthebuyer. Itshowstheselleryou’reseriousaboutbuyingthehome,whichcanbereassuringtothemiftheyagreetotakethehouseoffofthemarketwhileawaitingtheappraisalandinspectionresults, Whenbuyingapropertywithhighdemand,aconsiderabledepositcancompelthesellertoselectyourofferoverothers.Youmayalsogetmorefavorablecontractterms. Partiesinahomesalecanagreetoapplyearnestmoneytothebuyer'sdownpaymentorclosingcosts.Insuchacase,you'reputtingupsomeamountforthehomeinadvance. Howmuchearnestmoneyshouldahomebuyerpay? Theamountofearnestmoneyyouoffervariesbasedonthemarketandtheconditionofthehouse.Ifyouwantahomeinalocationpronetobiddingwarsandcashoffers,youmayhavetoofferaconsiderableamount.Alowerearnestmoneydepositmaybesuitableforafixer-upperinaslowmarket. Inmostrealestatemarkets,theaveragegoodfaithdepositisbetween1%and3%oftheproperty'spurchaseprice.Itcanbeashighas10%forhighlycompetitivehomeswithmultipleinterestedbuyers.Somesellersprefertosetfixedamountstohelpfilteroutbuyersthataren’tserious. Thebestwaytodetermineareasonableearnestmoneyamountistotalktoanexperiencedrealestateagent.They’llassessthepropertyandmarket-specificfactorsandquoteafigurewithinthestandardrange.Whilelosingyourgoodfaithdepositisunlikely,offeranamountthatthesellerwillappreciatewithoutexposingyourselftofinancialrisk. Payingearnestmoneydeposit Typically,youpayearnestmoneytoanescrowaccountortrustunderathird-partylikealegalfirm,realestatebrokerortitlecompany.Acceptablepaymentmethodsincludepersonalcheck,certifiedcheckandwiretransfer. Thefundsremaininthetrustorescrowaccountuntilclosing.That'swhentheygetappliedtothebuyer'sdownpaymentor closingcosts.Alternatively,youcanreceiveyourearnestmoneybackafterclosing.  Conditionsforearnestmoneyrefunds Contrarytopopularbelief,homebuyersdon'talwaysforfeittheirearnestmoneytothesellerifadealfails.Thebuyergetstheirgoodfaithdepositbackifrthesellerterminatesthehomesalewithoutavalidreason. Youmayalsoreclaimyourmoneyifthereasonforcontractcancellationisacontingencyoutlinedinyourpurchasecontract.Examplesofknownrealestatedealbreakersinclude: Whenahomeinspectionrevealsseverehousingdefects Iftheappraisalamountislowerthanthehomesalepriceandthesellerwillnotre-negotiatethesalesprice Whenthehomebuyercan'tsecurefinancing Whenabuyerisunabletoselltheircurrenthomebeforeclosingonthenewone It’simportanttounderstandpotentialcontractcontingencies,sobesuretogooverthecontractwithyourrealestateagentorattorney. Reasonsyoucanloseearnestmoney Therearetimeswhenhomebuyerslosetheirearnestmoneyafterabrokendeal.Twoscenariosthatmayleadtotheforfeitureofyourgoodfaithdepositare: Waivingyourcontingencies.Financingandinspectioncontingenciesprotectyourearnestmoneyifyourmortgagedoesn'tgothroughorthehouseisbeyondrepair.However,ifyouwaiveeithercontingency,youforfeityourgoodfaithdepositifthehousedoesnotgotosale. Ignoringcontracttimelines.Homepurchasecontractsoftenhavetimelineswithinwhichthebuyershouldcompletethepurchaseprocess.Failuretoclosethetransactionontheagreeddatemeansyouhave breachedthecontract.Youmayhavetoforfeityourgoodfaithdeposit. WhatifIchangemymind? Propertybuyersgettheirearnestmoneybackifthedealgoessouthforreasonscoveredincontingencies.Otherwise,there’slittleornochanceofarefund. Ifyouchangeyourmindlateinthebuyingprocessforreasonsotherthancontingencies,thesellercankeeptheearnestdeposit.Itcompensatesthemforthetime,moneyandeffortrequiredtolistthepropertyagainandobtainanotherbuyer. Howtoprotectearnestmoney Takethefollowingmeasurestoprotectyourearnestmoneyfromfraudorunjustifiableforfeiture: Puteverythinginwriting.Makesureyourcontractclearlydefineswhatamountstocancelingthesaleandwhoendsupwiththeearnestmoney.Includeanyamendmentstodetailslikebuyerresponsibilitiesandtimelines. Useanescrowaccount.Toavoidtrustissues,neverhandyourearnestmoneydirectlytotherealestatesellerorbroker.Letthemanagerbeareputablethird-party,suchasanescrowcompany,legalfirm,titlecompanyorarenownedbrokeragefirm.Makesurethefundsareinanescrowaccountandobtainareceipt. Understandthecontingencies.Ensurethatcontingenciesthatprotectyourinterestsareinthecontract.Mostimportantly,youshouldn’tsignahomepurchaseagreementthatdoesn'thavetheclausesthatprotectyou. Meetyourresponsibilities.Realestatepurchaseagreementsusuallysetdeadlinestoprotectsellers.Besuretorespondtoallquestionsandproviderequesteddocumentsinatimelymanner,aswellasmeetinspection,appraisalandclosingdeadlinestoavoidbreachingthecontract. Buyingahomeisabigpurchase.Youwanttomakethebestofferandprotectyourselfintheprocess.Earnestmoneyallowsyoutocommunicateyourseriousnessandensureyourselleriscommitted.Ifyou’reafirst-timehomebuyer,speaktoaHomeLendingAdvisortolearnmoreaboutinsandoutsofearnestmoney. Takethefirststepandgetprequalified StartOnline Havequestions?Connectwithahomelendingexperttoday! FindYourLocalHLA RelatedFinancingahomearticles Whatpercentageofyourincomeshouldgotowardsyourmortgage Thishandyguidewillhelpyoudecideexactlyhowmuchofyoursalaryyoushouldbespendingonmortgagepaymentseverymonth. Whatyou'llneedforamortgageapplication Alittlepreparationcanmakethemortgageprocessaloteasier.Usethischecklisttogatherdocumentsthatmayhelpexpeditetheprocess. Monthlyvsbiweeklymortgagepayments Learnhowmortgagepaymentswork,howtopaythemback,andtheprosandconsofmonthlyversusbiweeklymortgagepayments. Startofoverlay Close Endofoverlay Startofoverlay You'renowleavingChase Chase'swebsiteand/ormobileterms,privacyandsecuritypoliciesdon'tapplytothesiteorappyou'reabouttovisit.Pleasereviewitsterms,privacyandsecuritypoliciestoseehowtheyapplytoyou.Chaseisn’tresponsiblefor(anddoesn'tprovide)anyproducts,servicesorcontentatthisthird-partysiteorapp,exceptforproductsandservicesthatexplicitlycarrytheChasename. 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