Earnest money shows you’re ready to buy
Once you’ve agreed on a price with the seller, you can put down ‘earnest money’ to demonstrate your commitment to buying the home. It shows that you’re serious and you’re ready to buy.
Earnest money deposit is significant and can be a practical way to show a seller that you are a serious buyer.
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Earnest money is a deposit that you put down at the time you enter the contract (however, it’s not a down payment). This money is given to a neutral party and put in a trust or escrow account.
You can put down as much as 5% of the selling price for earnest money. Most deposits are between 1% and 3% of the purchase price. Earnest money may give you additional time to secure financing since the seller knows you’re committed.
Here’s how it works:
- If you proceed and buy the home, you can use earnest money as part of your down payment or have it returned to you at closing.
- If the seller rejects your offer, you get your money back.
- If you back out after the seller accepts your offer, the seller keeps the money.
Putting down earnest money will give you and the seller confidence that you’ll go through with the purchase.