Everything You Need To Learn About Earnest Money

You’re not alone if you’re confused by real estate jargon. Technical terms like earnest money, option fee, down payment, escrow, and closing may feel intimidating to the first-time home buyer.

Earnest money is used while buying and selling a house. It is the sum of money the buyer deposits to get into a purchase agreement with the seller. 

What is Earnest Money?

What Role Does Earnest Money Play?

Earnest money essentially works as an assurance to the seller for his consideration of the buyer’s offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home. 

Is Earnest Money Required?

Technically, you can get into the purchase contract without issuing earnest money. Also, it is not a requirement to get into a purchase agreement to buy a house. 

How Much Earnest Money Should You Put Down?

There is no set rule for the earnest money amount. The amount is highly negotiable, and often depends on whether it is a buyer’s market or a seller’s market at the time. Typically, it’s about 1% to 3% of the sale price.

Does Earnest Money Go Towards Down Payment?

The earnest money goes to the down payment and closing cost when the deal goes through. The money stays at escrow or title company until the closing date. Therefore, you can assume it is part of the down payment. 

Who Gets Earnest Money If the Deal Falls Through?

If the contract falls through, it is not always clear who will receive the earnest money. It depends on who caused the deal to falter.  

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