The Ins and Outs of Earnest Money: A First-Time Home Buyer’s Guide
As a first-time home buyer, you’re about to embark on an exciting journey filled with new experiences. Throughout our time working together, you’re likely to hear me mention “earnest money.” If this term is new to you, don’t worry – that’s what I’m here for! Let me explain what earnest money is, why it’s essential, and how it plays into the home buying process.
What is Earnest Money?
When you find a home you love and decide to make an offer, we wi’ll guide you through the process of depositing earnest money. This is a good faith deposit, demonstrating your serious intent or “earnest” to purchase the property. It provides the seller with some level of confidence that you’re genuinely committed to the transaction.
How Much Should You Put Down?
The amount you’ll need to put down can vary, but it’s generally 1% of the home’s purchase price. Here in the competitive Charleston, SC real estate market, offering a larger earnest money deposit can make your bid more attractive to the seller.
What Happens to the Earnest Money?
Your earnest money deposit isn’t an additional fee. After the sale is finalized, it typically goes towards your down payment or closing costs. If the sale doesn’t close, whether you can get your earnest money back depends on how your contract is written.
Most contracts include contingencies, such as a satisfactory home inspection, appraisal, or securing financing. If the contract is broken due to one of these contingencies, you will be able to reclaim your earnest money. However, if you change your mind outside of these contingencies, you might have to give up your earnest money.
How is Earnest Money Protected?
Rest assured, your earnest money deposit will be safely held in an escrow account by a third party, such as a closing attorney, until the closing. This ensures the funds are secure and can’t be misused by either the buyer or seller.
Understanding earnest money is a vital part of the home buying process. While it may initially seem like just another piece of real estate jargon, it’s a crucial step in showing your commitment as a buyer. As we navigate the Charleston, SC real estate market together, knowledge of this concept will empower you and make the process smoother.
If you have any more questions about earnest money or the home buying process, don’t hesitate to ask. We are here to guide you through this journey and ensure you feel confident every step of the way.
The Paul Smith Team