Together, they are strong

Here are two terms buyers should understand when making a home purchase: “down payment” and “earnest money deposit.” They both involve money, but represent two different aspects of a home purchase.

For simplicity, let’s say home is priced at $100,000. By financing 96.5%, the down payment would be $3,500, payable at closing. When making the offer, the buyer provides the pre-approval letter from their lender to be presented with the offer. The lender will have the buyer provide proof that they have the $3,500 in order to get their pre-approval letter.

The “earnest money deposit” is a different story. An earnest money check is provided at the time a purchase contract is signed and it is negotiable. The check is cashed and it is held in the broker’s trust account or the title company’s escrow account until the transaction is closed. It can be applied to the purchase or a check for that amount may be given to the buyers at the closing.

Most contracts provide that if the purchaser’s mortgage is not approved or if habitability repairs are not made by the seller, the earnest money is returned to the buyer. The deposit may be forfeited only if the buyer fails to perform even though their loan has been approved and the seller has made habitability repairs.

How much should be offered as earnest money? It depends on what is customary in your area. A higher amount of earnest money sends a message to the sellers that you are confident that your contract will get to closing. Buyers who offer a small amount of earnest money may send a message to the seller that perhaps they are not totally committed to complete the transaction.

When buying your next home, let the sellers know you mean business. The larger your earnest money deposit, the more credible your offer becomes to the sellers.

Contact the Kathy Henne Team RE/MAX by calling 937-778-3961.