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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: jhorrocks/Getty Images October 06, 2021 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Ellen Chang is a former contributor for Bankrate. Chang focused her articles on mortgages, home buying and real estate. Her byline has appeared in national business publications, including CBS News, Yahoo Finance and MSN Money. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Buying a home comes with upfront costs, including the , , and earnest money. What is earnest money
Earnest money definition
Earnest money is an upfront payment, also known as a deposit, that demonstrates your intent to buy a home. By paying earnest money, you’re showing that you’re serious about the purchase. “At closing, the earnest money deposit is credited toward the buyer’s purchase of the home,” explains Lee Hunt, a senior loan originator with Motto Mortgage Simplified in Aiken, South Carolina. How does earnest money work
The purpose of an earnest money deposit is to show the seller that the buyer is serious about their offer by putting some “skin in the game,” says Bill Golden, associate broker with RE/MAX Around Atlanta. “It lets a seller know that the buyer intends to comply with the terms of the purchase and sale agreement,” Hunt says. In most cases, you’ll need to deposit the earnest money within a day or two after your offer is accepted. The funds are then held by the real estate brokerage in an while you and the seller work to finalize the deal. In Georgia, the earnest money is held by one of the real estate brokers in the transaction, or sometimes by an attorney, Golden says. Is earnest money required
Earnest money is not required by law, but it is standard practice, and the “majority of sellers demand it prior to accepting a contract,” Hunt says. How much earnest money should I put down
The amount of earnest money you’ll need to pay is typically 1 percent of the home’s purchase price, but it can depend on the type of transaction and the nature of the broader market. On a $355,000 home, for example, you’d put down $3,550 as an earnest money deposit. “In this competitive market, many buyers are offering significantly more to make their offer stand out,” Golden notes. Because most real estate agreements have to protect you as the buyer, handing over more earnest money to give you a leg up comes with relatively little risk. “As long as you pay strict attention to the dates and terms of all contingencies, a buyer’s earnest money is safe — as long as they don’t just try to walk away for a reason not included in the contract,” Golden says. Is earnest money refundable
“Earnest money is refundable under certain conditions, depending on how the contract is written,” Golden says. “Most contingencies in the contract — including the inspection or due diligence period, the financing and the appraisal contingencies — protect the buyer’s earnest money.” So, if a deal falls through due to issues with the home inspection, for example, you’ll get your earnest money back. Here are some common contingencies that allow you to recoup your deposit: Financing contingency: This applies if the mortgage lender denies your loan and you can’t obtain financing for the home purchase. : This comes into play if the appraisal for the home ends up being lower than the amount of the mortgage. Inspection contingency: This protects you if the home inspection uncovers issues you didn’t know about, or problems you and the seller aren’t willing to address. If all the contingencies have been met, however, and you still , you’re likely to lose your deposit to the seller. “Contracts are very specific about the process in which the earnest money would be disbursed in such cases,” Golden says. How to protect your earnest money deposit
You can protect your earnest money deposit in two ways: Looking out for signs of – Do not give earnest money directly to a home seller, or wire the funds to the real estate brokerage, attorney or without first confirming the wire instructions have been sent from a legitimate source. You can do this by calling the brokerage or company at the correct phone number — sometimes, fraudulent emails contain phony contact information, so be vigilant when making the call. Understanding how contingencies work – Although some buyers are to make their offer more competitive, that can backfire if you need to walk away from the transaction. Have your real estate agent or attorney explain all contingencies and what your obligations are as the buyer, as well as the best way to waive a contingency if that’s the right strategy. Learn more
SHARE: Ellen Chang is a former contributor for Bankrate. Chang focused her articles on mortgages, home buying and real estate. Her byline has appeared in national business publications, including CBS News, Yahoo Finance and MSN Money. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Related Articles