Earnest money is just an initial deposit to secure your offer, while the down payment is a larger sum that reduces the amount you need to borrow.
Think of earnest money as a way to show the seller you’re serious about the purchase. This deposit, usually ranging from 1% to 3% of the home’s price, helps make your offer stand out.
Does earnest money go towards the down payment?
Yes, earnest money does go towards your down payment. If your offer is accepted, the earnest money you’ve already paid is applied to your down payment or closing costs.
For instance, if you’ve put down $5,000 in earnest money and your total down payment is $20,000, you’ll only need to pay the remaining $15,000 at closing.
Will I get earnest money back if my offer is not accepted, or if the deal falls through?
If your offer isn’t accepted, you usually get your earnest money back. This deposit is meant to show the seller you’re serious about buying, but it’s refundable if your offer doesn’t go through.
Just make sure you understand the terms in your purchase agreement. (A purchase agreement is a contract between the buyer and seller that lists all the details about buying a house). If you back out of the deal for reasons not covered in the contract, you might lose your earnest money. However, if the sale falls through due to issues like financing or a bad inspection, you should be able to get your earnest money back.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
