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Earnest Money Deposits
There are a few important things you should know about earnest money deposits when buying a home. First, the deposit must be non-borrowed funds meaning they must be traceable from your personal bank account. Sometimes you can simply write a personal check for the deposit, but in some cases you may need to provide a certified check or even a wire transfer. Second, the deposit is typically 1-2% of the purchase price of the home. For example, a $200,000 home should require an earnest money deposit of $2,000-$4,000. It is important to keep in mind that sellers want the earnest money deposits to be as high as possible. The higher the deposit the more likely the buyers will not back out of the deal or risk loosing the deposit.
The third thing you must know about earnest money deposits is that as a buyer you can be forced to forfeit the deposit if you do not hold up your end of the contract. Contracts will be written with deadlines to ensure that the process moves along in a timely fashion. Some of the deadlines will be items that the sellers must complete, and others will be the buyers responsibilities. If the seller fails to meet the requirements of the contract the earnest money shall be returned to the buyer. However, if the buyer fails on a part of the contract it is possible that the contract can be cancelled and the sellers will be rewarded the earnest money deposit.
Overall, earnest money deposits can be a surprise to first time home buyers, but this guide will help to provide buyers with a better understanding of what earnest money deposits are and why they are important.
As a Full Time real estate agent for the past 23 years, Sheryll has helped hundreds of home owners in Colorado buy and sell their homes. Sheryll's easy going, no pressure style and her in depth knowl....