What You Need to Know About Earnest Money in Real Estate
Filed under: Finances
As you are getting ready to finalize the paperwork to buy your new home, there are several things that need to be in place to close the deal. An earnest money deposit is one of those steps, and many home buyers have questions about how this part affects the home-buying process.
How an Earnest Money Deposit Works
Earnest money is the amount that a buyer provides to show that they are serious about buying the property. It’s basically a gesture of good faith, showing that there is a level of commitment in the transaction.
Usually, the deposit is sent soon after the seller accepts the buyer’s offer, and it’s the next piece that moves the process closer to the final purchase agreement.
How Much Do I Pay for Earnest Money?
The amount of this deposit depends on a variety of factors and the specifics of the transaction. Usually, this deposit is calculated at around 2 – 3% of the purchase price. For example, if your offer for the property was $300,000, then you will need to make an earnest money deposit of anywhere from $6,000 to $9,000.
How the Escrow Works
The buyer and seller need to first agree on the terms and conditions of the purchase (including the amount of earnest money that will be paid), then the funds are put into an escrow account. This escrow company is a third-party provider that holds the funds while both parties are working through the details of the transaction.
Typically, the escrow is held for three business days after the final offer is accepted and signed.
How to Transfer Earnest Money to the Escrow Company
There are several options available to transfer this earnest money to the escrow company. The most common solution is to wire the money through the bank, which is preferred since it’s a secure transaction. You can also write a personal check, but this form of escrow payment must be approved in writing by everyone involved before you can move forward with this method.
Earnest money deposits are a normal and expected part of the home-buying process. As a buyer, paying the earnest money is a way to show your commitment to the purchase. If you have questions or need help with earnest money or anything else relating to real estate in Temecula, then I’m always just a phone call away. Call, email, or text Cale Thomas with Properties Direct at (951) 473-0390 or [email protected].