This Article Is About What Is Earnest Money  On Home Purchase

Earnest Money is a deposit a homebuyer 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:

• Homebuyers who are interested in making an offer on a particular home normally write a 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 Funds are 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.

Earnest Money On Home Purchase: Contingencies On Purchase Contract

When a homebuyer enters into a real estate purchase contract, the earnest money shows that the home buyer is serious about the home purchase. When a homebuyer 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. If the homebuyer back out of the real estate purchase contract they will get a full refund on their earnest money deposit.

There is a deadline date for the sellers to return the earnest money deposit in the event the home purchase contract gets canceled by the homebuyers due to contingencies.

Earnest Money On Home Purchase: Typical Contingencies

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

• Earnest money needs to be refundable by a certain date
• 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.

Who Holds The Earnest Money On Home Purchase

The earnest money is held in an escrow account of a realtor, attorney, or title company. For example, if a homebuyer 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 homebuyer 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

 

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 the down payment and/or closing cost verification
• However, if the 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 homebuyers give the sellers earnest money, they should always give the earnest money via check
• Lenders will want to see a copy of the canceled check
• Make sure that the funds came from the borrower’s account
• The funds in the 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

Home Buyers who need to qualify for a mortgage with a national mortgage company licensed in multiple states with no mortgage overlays on government and conventional loans, please contact us Gustan Cho Associates at 800-900-8569 or text for faster response. Or email us at gcho@gustancho.com. We have zero lender overlays on FHA, VA, USDA, and Conventional Loans. Gustan Cho Associates has a national reputation of being a one-stop mortgage lending shop. We are experts on non-QM loans and bank statement mortgage loans for self-employed borrowers.