What is an earnest money deposit (EMD)?
An earnest money deposit is given by a prospective buyer when making an offer on a property as a show good of faith. It helps the seller determine which buyers are serious. Once a property sale is completed, the EMD is put toward the down-payment from the buyer.
How much earnest money will I need when buying a house?
Each state has its own rule-of-thumb. In California, EMD is usually 3% of the purchase price of the home. The amount of the deposit is negotiable, but the stronger the EMD, the stronger a buyer looks to the seller.
How do I go about making my earnest money deposit?
Once you’ve signed the purchase agreement, your earnest money deposit will be sent to the title company or seller’s broker to be held in escrow until the sale becomes official. Typically, a personal check is acceptable. Sometimes, a seller’s broker will insist upon a cashier’s check or wire transfer.
What if the deal falls through? Can I get my earnest money back?
It depends. Typically, if a buyer backs out, the EMD deposit is kept by the seller to cover some costs/effort to re-list. In some instances, even a serious buyer may run into obstacles that make the property purchase either less appealing or simply impossible, such as a bad property inspection, or an inability to secure a loan. Generally, if a deal doesn’t close, the seller receives a nominal cancellation fee from the EMD. Depending on the purchase agreement and circumstances, the remainder of the deposit is either returned to the buyer or divided between the buyer and seller.
A buyer should always review their purchase agreement to make sure it states clearly how an earnest money refund will be handled.
What if I don’t have earnest money? Can I still make an offer on a home or investment property?
While many conditions can be negotiated, earnest money is considered a typical and often unavoidable part of the buying process. The Funding Warehouse is in the unique position of being able to help potential buyers with their earnest money deposit, in addition to a wide range of funding options for investors nationwide.
Call us at 818-357-5486 or visit us at thefundingwarehouse.com to find out more about how we can help you with your earnest money deposit.