What Is Earnest Money and Why Do I Need It?
If you’ve never been through the home-buying process, some of the terminology can seem a bit foreign. One of the many phrases you might come across is earnest money (aka 'good faith' deposit).
When making an offer on a home, it is required to include earnest money with that offer. Earnest money is a payment of approximately 1% of the purchase price that is intended to show the seller you are very interested and intend to close on their property. The amount isn’t set in stone and it usually depends on the market. So, where does that money go?
When you close on the property, that earnest money will go towards any closing costs, down payments, or other items you would typically pay out of pocket. If you wish to exit the contract prior to closing, you are entitled to receive your earnest money back IF you are exiting the contract based on contingencies stipulated in your purchase agreement (e.g., financing falling through, an unacceptable home inspection or appraisal, etc). However, if you decide to back out of the contract, for no real reason other than changing your mind, the seller may be able to retain your deposit.
Have questions about the home-buying process? Reach out anytime! (616) 419-8095.