Earnest Money On Home Purchase Transaction

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What Is Earnest Money On Home Purchase Transaction?

This BLOG On What Is Earnest Money  On Home Purchase Was UPDATED On April 11th, 2019

What Is Earnest Money On Home Purchase Transaction?

Earnest Money is a deposit a home buyer submits with the real estate purchase offer. This deposit gives the home seller the assurance that the home buyer is serious about the purchase of the home.

Here is how the deposit of a home purchase transaction works:

  • Home buyers who are interested in making an offer on a particular home normally writes an earnest money check
  • Submits it with the real estate purchase contract to the seller
  • There is no minimum amount of deposit a home buyer needs to submit
  • Sometimes a buyer writes an earnest money check for $500
  • While other times check can be $10,000
  • Earnest Money is refundable during the home buying process contingency period
  • The higher the deposit, the more likely it is that the seller will accept the offer
  • Large earnest money shows strength and the seriousness of the purchase offer
  • Earnest money is used towards the down payment of the home purchase
  • Gets applied from the cash to close the borrower needs to bring at closing
  • The earnest money is deducted from the down payment required by lenders

Contingencies On Purchase Contract

Contingencies On Purchase Contract

When a home buyer enters into a real estate purchase contract, the earnest money shows that the home buyer is serious about the home purchase.

  • When a home buyer enters into a real estate purchase contract, there will be many contingencies
  • Contingencies listed on a real estate purchase contract is a clause that allows the buyers of the home to back out of the deal and get a full refund on their earnest money deposit

Typical Contingencies

Typical Contingencies

Here are examples of contingencies on a real estate purchase transaction:

  • Home inspection
  • Mortgage contingency
  • Appraisal contingency
  • Closing terms contingency
  • Other contingencies will be listed on the real estate purchase contract
  • For each of these contingencies, there is a time period
  • A home buyer has a certain amount of time to do their due diligence on the subject home
  • Can cancel the real estate purchase contract during this time period with no questions asked
  • The earnest money is held in an escrow account of a realtor, attorney, or title company
  • For example, if a home buyer enters into a real estate purchase contract and has a ten day home inspection contingency, the home buyer has ten days of getting the subject property inspected
  • If the home inspector finds many defaults with the subject property and the home buyer decides to cancel the real estate transaction, they may do so and the full earnest money needs to be returned by law
  • Or both the buyers and sellers can go back to the drawing table and renegotiate the purchase contract
  • The seller will give a certain amount of time to the home buyer to cancel the home purchase
  • After a certain date, the earnest money can become non-refundable
  • For example, there is a mortgage contingency date on a real estate purchase contract for mortgage loan commitment, appraisal, home inspection, and closing
  • If the mortgage contingency date passes and the home buyer does not ask for an extension, then the earnest money can become non-refundable

Issues With Earnest Money During Mortgage Process

Issues With Earnest Money During Mortgage Process

All assets in the mortgage approval process need to be verified. Undocumented funds cannot be used as sourced qualified funds and be applied for cash to close.

Here is important information on sourced funds:

  • Lenders will require 60 days of bank statements and all deposits need to be verified
  • For example, if borrowers have an irregular deposit for $5,000 and that $5,000 was a cash deposit, that $5,000 cannot be used towards down payment and/or closing cost verification
  • However, if borrower got that $5,000 deposit from a sale of a vehicle, then a copy of the check and bill of sale will be required and they can use that $5,000 towards asset verification
  • Borrowers get gift funds from a family member, then a gift letter from the donor will be required as well as 30 days bank statements from the donor
  • The funds leaving the donor’s account into the recipient’s account
  • When home buyers give the sellers earnest money, they should always give the earnest money via check
  • Lenders will want to see the copy of the canceled check
  • Make sure that the funds came from borrower’s account
  • The funds in borrower’s bank account need to be seasoned for at least 60 days
  • There are many cases where home buyers give cash for their earnest money
  • Unfortunately, this will create senseless paperwork and the cash earnest money cannot be used towards the down payment on the home purchase

Qualifying For Mortgage With Direct Lender With No Overlays

Qualifying For Mortgage With Direct Lender With No Overlays

Home Buyers who need to qualify for mortgage with a national direct lender with no mortgage overlays on government and conventional loans can contact us Gustan Cho Associates Mortgage Group at Loan Cabin Inc. at 262-716-8151 or text for faster response. Or email us at gcho@loancabin.com. We have zero lender overlays on FHA, VA, USDA, and Conventional Loans. We are correspondent lenders on non-qm loans and bank statement mortgage loans for self employed borrowers.

Gustan Cho NMLS 873293

www.gustancho.com

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