You may think that buying your dream property is as ideal as signing a contract along with the owner and eventually giving the down payment. But the actual scenario is that you have to prove that there is “earnestness” attached to the buying of the property. Well what is the earnest money deposit?
This deposit is a portion of the down payment. This shows the buyer’s interest to implement the agreements that is set forth in the contract. An escrow account will take care of the deposit. This escrow is a form of trust fund that is managed by both the parties and has effect till you close the transaction.
Now let’s see some of the important aspects of an earnest deposit:
- As soon as the purchase agreement is signed the buyer and seller will make deposit payment. This check or money order is then kept aside in an escrow which is maintained by the specific real estate brokerage. There are strict laws from the state regarding the dealing of these monies. It should be made clear that this money should never go in the hands of a broker through his business bank account.
- Just as you are careful in getting a receipt for any financial transaction it is essential to ask for a receipt, for the earnest deposit which would be provided to the real estate agent.
- With regard to the question of how much earnest amount one should pay, it has lot of variations. Having said that, different states have their legal limits for the earnest money. In case of a purchaser who can pay only less down payment he has to spend lot of earnest deposit. This is as a surety that he or she will get through a mortgage.
- Generally the experts feel that the earnest money can be somewhere between 2% to 5%. This percentage is calculated from the purchase price. But again the actual money depends on the thriving of the market.
- In case the purchasers decide on paying a large chunk as earnest deposit the lender will be interested to confirm the source of these monies.
- One important thing to be kept in mind is that the earnest deposit is not in any way an additional expenditure of purchasing a property. At the time of closing the deal it will be added with the down payment.
- Earnest deposits aren’t simply some random money paid. These sums enunciate the earnestness of the buyer and show that they are capable of carrying out their promises as per the purchase agreement. The real estate transaction conveniently commences with the earnest deposits that safeguards the seller in case the purchaser gives problems in the specific deal.
- You would be investing some money in your bank account. Similarly an earnest deposit will provide you with interest through its escrow.
Dc Fawcett, the real estate expert, and also the founder of the Virtual Real Estate Investing Club, is well-equipped in the real estate scenario and assists people develop their real estate investing business.