If you’re looking to buy a house, you may have heard of the term “earnest money.” Earnest money deposits have helped many people purchase a home, but it’s smart to familiarize yourself with what they are before you make one of your own. Use these frequently asked questions to learn more about how these kinds of deposits can help you.

A Beginner’s Guide to Earnest Money

What is earnest money?

Earnest money is a deposit that shows you are committed to purchasing a house even though you’re not closing on it yet. For example, maybe a property appraisal or inspection needs to be conducted before you decide to close.

The buyer and seller will then draw up a contract that guarantees that the seller will keep the home off of the market. The contract does not guarantee, however, that the buyer will move in. For instance, if an inspection reveals a problem with the home, the buyer can choose not to move in, and can get their deposit back if this contingency was specified in the contract.

How much should you deposit?

As a general rule, the deposit should equate to 1-2% of the total cost of the house. There are various factors that could alter the amount, such as government policies or the current state of the housing market. For instance, if the market demand for the house isn’t very high, you may be able to pay less than 1%. If the house is really in demand, you may be asked to pay more than 2%.

When do you make the deposit?   

The deposit is typically made after your offer for the house has officially been accepted and you’ve signed the purchase agreement. The seller doesn’t immediately receive the money, however. Your deposit will be held in escrow until you officially close on the house. Then, the money will be transferred to the seller.

Can you ever lose the deposit?

If you, as a buyer, do no fulfill your end of the contract, your deposit will remain in escrow until the deposit holder decides whether to refund the money by looking over the terms of the contract you entered. If you plan to buy a house and make an earnest money deposit, you may want to contact an attorney to help you identify potential contingencies to list in the contract.

If you’re looking to buy a house, check out The Bekah Cochran Team: Keller Williams Greater Downtown Realty in Chattanooga, TN. Bekah and her team have the credentials and the experience to help you find your dream home. Bekah knows the Signal Mountain and Lookout Moutain real estate markets inside and out and is passionate about advocating for her clients so they can get the best place for the best price. For more information, visit Bekah and her team online or give them a call at (423) 508-5986.

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