What's Earnest Money?
How much should I set aside?
Earnest money is money put down to demonstrate your
seriousness about buying a home. It must be substantial enough
to demonstrate good faith and is usually between 1-5% of the
purchase price (though the amount can vary with local customs
and conditions). If your offer is accepted, the earnest money
becomes part of your down payment or closing costs. If the
offer is rejected, your money is returned to you. If you back
out of a deal, you may forfeit the entire amount.
The larger the deposit, the greater the chances that the
seller will accept the offer and that the buyer will not try
to cancel the purchase.
Often, the initial deposit is small, to be increased upon
removal of the inspection contingencies. But a large deposit
check, to be held in a trust account beyond the seller's
grasp, often convinces the seller to accept a low offer.
How much down
payment do I need?
Ideally, you
will want to come up with at least 20% of the value of your
new home as a down payment, to avoid things like mortgage
insurance (money paid to insure the mortgage when the down
payment is less than 20 percent) payments. But, you may
qualify for plenty of financing arrangements that will get you
into a new home for as little as 3% of the asking price.
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There are a lot of purchase contracts
available. Each state has its own laws, here's
the basic information:
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Complete legal description of the
property
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Amount of earnest money
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Down payment and financing details
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Proposed move-in date
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Price you are offering
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Proposed closing date
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Length of time the offer is valid
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Details of the deal
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You’ll
probably want to make your offer contingent upon
obtaining suitable financing.
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You
may ask the seller to pay some or all of the
closing costs or provide a warranty.
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What other conditions must be met for the deal to
go through (in other words, contingencies).
For instance, you'll probably want to make your
offer contingent upon obtaining suitable
financing.
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A response time, settlement time, and occupancy
time. For example, you may give the seller two
days to respond to your offer. You might also ask
for 60 days to secure financing and require the
seller to be out completely of the house on the
day of the closing.
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What else is included with the house, such as
appliances, window treatments, (remember, you can ask for anything that you want, and
everything is negotiable).
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The required condition of the house at settlement.
For example, you may want to request that certain
repairs be made.
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Other provisions, such as the pro-ration of taxes,
homeowners' association and
club fees, and on and
on.
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