You’ve finally found your dream home and you’re getting ready to make an offer. It’s an exciting time!
But there’s also a lot at stake. The decisions you take when purchasing a house can have a long-term impact on your net worth. Since your home is one of the most valuable assets you own, it’s important to make sure that your financial decisions are sound.
Before you submit your bid, it’s important to understand what an Earnest Money Deposit (EMD) is, how you can use one to strengthen your offer, and how to protect your money should anything come up during your home-buying process.
Here’s what you need to know:
What’s earnest money?
Earnest money is also known as a “good faith deposit”) is money that accompanies your offer and tells the seller that you’re serious (“earnest”You can also contact us to discuss your bid.
If you back out of the deal for any reason that’s not covered in your contract (for example: cold feet), you could lose your earnest money deposit.
EMDs may not be legally required by law, but they can still be requested contractually. An EMD is a way to get the seller’s attention and encourage them to accept your offer.
Calculating your earnest money deposits
It is important to consider your EMD when you are submitting multiple bids. A seller is more likely to accept an offer with a higher EMD, because by putting more money on the line, the borrower is showing that they’re serious about closing on the home.
How much can you expect to pay?
Earnest money deposits can range from $500 to $1,000 in some markets. EMDs in most states are usually 1%-3% of the total price. In markets that are more expensive or more competitive, the deposit can reach as much as 10%.
Ultimately, the amount and type of EMD will depend on local laws and customs in the market where you’re buying, not to mention the individual preferences of the seller.
- California needs some “consideration” Or, funds that are offered to secure an agreement for purchase.
- In Colorado, MLS listings show the seller’s required minimum earnest money deposit. Similar listings are also found in other markets.
You can also negotiate: Even though sellers may list minimum EMD amounts, these are usually negotiable in buyer-friendly areas. Ask your realty professional how to negotiate effectively earnest money for your market.
New BuildsThe builder negotiates an EMD for new construction. Some builders demand up to a 50% EMD for a new home, especially if it’s…
More information: www.homelight.com