Is $10,000 enough for earnest money?
Earnest money usually equals between 1% and 5% of the sale price as a deposit. However, some sellers ask for a fixed amount ranging from $5,000 to $10,000.
A lower earnest money deposit may be suitable for a fixer-upper in a slow market. In most real estate markets, the average good faith deposit is between 1% and 3% of the property's purchase price. It can be as high as 10% for highly competitive homes with multiple interested buyers.
In a more competitive market, however, the seller may expect an initial deposit of up to 5%. In very competitive home buying situations, a real estate agent may recommend an even higher earnest money deposit to prove the buyer is acting in good faith and increase their chances of being chosen.
Backing out of an offer for a non-contingent reason means you risk losing your earnest money. Since you put that money down based on the promise that you would follow through with the contract, backing out for any reason that's not outlined in the agreement means the seller is legally permitted to keep your money.
Earnest money is typically around 1% – 3% of the sale price and is held in an escrow account until the deal is complete. The exact amount depends on what's customary in your market.
The purpose of earnest money is to provide the seller with compensation in the event that the buyer backs out of the deal through no fault of the seller and in violation of the agreements in the purchase contract. If that happens, the seller gets to keep the earnest money.
While the buyer and seller can negotiate the earnest money deposit, it often ranges between 1% and 2% of the home's purchase price, depending on the market.
The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000.
While many inexperienced home buyers think that this is the down payment, it really isn't. The earnest money deposit is made along with your offer to show the buyer that you are a serious buyer and goes TOWARDS your down payment. The down payment, of course, is much larger and comes at the time of closing.
It's up to the two parties (buyer and seller) to decide the amount of the earnest money. In most cases, the amount will equal 3% of the purchase price. So if you are buying a $2,000,000 home, the seller will ask the buyer to deposit $60,000 as earnest money deposit in escrow.
Why would you lose earnest money?
You might not get your earnest money back if: You don't meet the deadlines listed in the contract for inspections and appraisals. You have a change of heart.
While laws vary by state, in general, up until that contract is signed by both parties—even after counteroffers have been sent out—all new offers can be considered and accepted. Once both parties have signed it, however, the seller is pretty much locked into the deal.
Depending on the circ*mstances, this money may be recovered through the legal system. In terms of refusing to close on a building contract, if the buyer defaults, the seller can sue for the difference in money damages that were incurred as a result of failing to close the contract.
Earnest money is a good-faith deposit you make on a home to show the seller you're serious about buying. The money is deposited after the seller has accepted your offer and is usually kept in an escrow account. When the sale closes, you can keep the cash or apply the money toward the purchase.
Earnest Money Deposits Generally.
Most written agreements provide that the earnest money will be forfeited to the seller should the buyer default under the terms of the contract. If the transaction fails for reasons unrelated to the buyer's nonperformance, the earnest money deposit is normally refunded.
The amount you may want to reduce your home's asking price depends on many factors, including the median price in your area, what comparable homes nearby are selling for and the length of time the home has been on the market. According to a Zillow study, the average price cut is 2.9 percent of the list price.
You ignored the timeline outlined in the contract
Watch out for this phrase in your paperwork—it means the closing date for the sale is binding. If you can't make it to close the real estate transaction on time for any reason, you as the buyer have breached the contract and could forfeit your earnest money.
In competitive markets and in cases where multiple similar offers are being considered, a higher earnest money deposit can sometimes help guide the seller to the most motivated and capable buyer. By accepting an offer, a seller is committing to pulling their property off the market for a period of time.
A seller that feels entitled to the deposit or a buyer that feels a refund is deserved will try to get escrow to release the deposit. Escrow cannot release the deposit without instructions signed by both the buyer and seller or a court order from one of the parties.
Some home buyers pay as little as $500, while others pay several thousand dollars. The amount is negotiable between you and the sellers. It depends on various factors, including the price of the home, the strength of the local real estate market, and your financial situation.
How do you negotiate an earnest money deposit?
Negotiating earnest money can be challenging, but it's not impossible. Both parties need to be willing to compromise and work together to reach an agreement. If the buyer is uncomfortable with the amount of earnest money the seller is requesting, they can negotiate with the seller to reduce the deposit amount.
Backing out of escrow
“This could mean loss of deposit, but it could even go beyond that.” However, if there's still a contingency in the purchase and sale agreement that has not been met during escrow, it's easier for a buyer to walk away from the sale.
If you make $70K a year, you can likely afford a home between $290,000 and $310,000*. Depending on your personal finances, that's a monthly house payment between $2,000 and $2,500. Keep in mind that figure will include your monthly mortgage payment, taxes, and insurance.
A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $300,000. That's because your annual salary isn't the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors.
Assuming a 20 percent down payment on a 30-year fixed-rate loan at an interest rate of 7 percent, you can afford the payments on a $240,000 home, according to Bankrate's mortgage calculator.
