You may have heard of the term “earnest money deposit” which is also referred to as an initial deposit. Read on further to learn everything you need to know about an earnest money deposit.
What is an earnest money deposit?
An earnest money deposit gets paid into escrow usually within one business day of your purchase offer getting accepted. The money can be wired or sent via cashier’s or personal check and is payable to the escrow company that you are working with.
What is the typical amount for an earnest money deposit?
The amount of an earnest money deposit can vary but is typically no less than $1,000 that gets payable to the escrow company. The amount can be greater for higher end properties or if you are in a competitive situation and want to show the seller that you are motivated to purchase. The deposit gets applied towards your down payment. If you are doing a no down payment loan (i.e. VA loan or USDA loan), the earnest money deposit will be applied towards your closing costs or credited back to you at closing.
What is an additional deposit?
While the initial deposit gets sent to escrow once your offer is accepted, the additional deposit comes later in the transaction once you have passed your J-1 Home Inspection Contingency. This amount can also vary depending on your loan type and down payment amount but will typically range from $2,000-$5,000 (or higher depending on the competitive situation or if you are purchasing a higher end property). Similar to the initial deposit, the additional deposit will also be applied towards your down payment or credited back to you at closing.
What happens to my deposit money if I decide to cancel the contract?
As long as you are within your contingency periods, you are entitled to your deposit money back. If the buyer is considered in default or if the contract gets cancelled per Paragraph O-1, contractually you do not have the right to your deposit money back.
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