Earnest money is a good faith deposit that is part of the down payment but should not to be confused with a down payment. When buyers execute a purchase contract , the contract specifies how much money the buyer is initially putting up to secure the contract, to show "good faith," and how much money all together will be deposited as a down payment.
Think of escrow as good faith money when a seller accepts your offer on a house. It’s also known as earnest money, an apt term. If you can’t close the loan you may lose your escrow money, but much depends on the contingencies in the real estate sales contract and the reason the loan cannot close.
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The amount of earnest money is negotiable between the buyer and seller, but is usually about 1% to 2% of the purchase price (although it can shoot up to 10%).
With an earnest money deposit, the seller can rest assured that the buyer fully intends to purchase the home, and the buyer gets a little extra time to prepare for the mortgage transaction. Good faith money, as earnest money is sometimes called, is the home buyer’s promise to the seller that they will be attempting to buy the property for sale.
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· Earnest money is a deposit the home buyer puts down when making an offer to purchase a home. The purpose is to show the seller that you are earnest (an old-fashioned word for “serious”) about buying their house. The earnest money deposit demonstrates your good faith in purchasing the home and your intent to move the deal forward.
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An earnest money deposit is a guarantee that the buyer will fulfill. The lender will use this money, plus an additional amount in each monthly mortgage payment, to pay for property taxes and.
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Earnest Money is paid by the buyer to confirm that he/she is serious about purchasing from the seller. This deposit becomes part of the down payment and closing costs once the deal is finalized. However if you don’t close on the property, it is not guaranteed that you will be reimbursed for the deposit.