When you’re buying a home in Tampa Bay, you’ll most likely have to put down an earnest money deposit.
So what is earnest money, and why do you need it? More importantly, what happens to your hard-earned cash?
What is Earnest Money?
An earnest money deposit, sometimes called a good-faith deposit, is a lump sum of money that you show the seller (you don’t give it to the seller; we’ll cover that next) to say that you’re a serious buyer.
Why Do You Need Earnest Money?
When you make an offer on a home, you’re asking the seller to take it off the market. That means he or she is taking a big risk – but when your earnest money shows up, the seller knows that you’ll really buy the house if you’re able to.
How Much is an Earnest Money Deposit?
You can expect to put down between 2 and 5 percent of a home’s purchase price on an earnest money deposit. Let’s say you’re spending $200,000 on a house. You’ll need to come up with between $4,000 and $10,000 as an earnest money deposit.
What Happens to Earnest Money?
Your earnest money deposit goes toward your closing costs, your down payment or your mortgage when you close on the home. If you back out of the deal without a contingency allowing you to do so written into your purchase contract, though, you could forfeit your deposit to the seller.
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