Profile picture for smitbrit

is earnest Money deposit meant to come from your Down payment funds/closing costs or addition to?

I have never bought a house before, due to our price range I keep seeing mention of earnest money deposits. From internet searches I see they are frequently found in REOs and short sales? I also saw that its not always refund able? if they don't refund the earnest money deposit will it be counted as part of your down payment? and even if they refund it, are you expected to prove you have this money in addition to your down payment and closing costs? or can you use part of your down payment as the earnest money?
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010 - Palms
We think we've answered this question for you!
  • Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.
 
 

Answers (18)

Yes
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 07 2011

Traci Bates articulated it perfectly!

  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 07 2011
Profile picture for smitbrit
thank you for your responses. they were very helpful.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 07 2010
Yes, it is part of your down-payment/closing costs and needs to be verified that those funds came from your accounts.  Otherwise, "gift" issues will likely need to be addressed.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 03 2010
Regarding one of the comments here I'll mention that in Texas Earnest Money is NOT required to create a contract.

Yes, most contracts here include Earnest Money, and there is a blank space for Earnest Money right on page 1, it is not needed.  Here, "A promise for a promise" is adequate to create a contract, as in: the seller will sell the property and the buyer will buy it using the terms set forth in the promulgated contract form.

Oddly, the Texas contract has an Option paragraph which creates an Option to buy for <fill in the blank days, usually 14> in which the principals agree that the buyer will pay the seller a nominal fee (here often very small, say $50) and seller grants a right to inspect.  The sell gets the $50 check
and the buyer can dissolve the contract for any reason during the Option Period. Most times the Option Fee is credited back to buyer at closing.
If this fee is not paid in a timely manner the agreement becomes unenforcable.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 03 2010
Simply put the earnest money deposit is part of your down payment.  
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 03 2010
Earnest money is absolutely part of your down payment and/or closing costs.  Whether or not it is refundable is laid out in the terms of the purchase contract.  Be certain to get clarity from your agent on anything that would impact the refund of the your earnest money if the transaction did not  come together.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 03 2010
It's usually part of your downpayment..
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 02 2010
Earnest money is used to show you are serious about purchasing the home. When the house closes the money is applied towards your loan or closing costs.  The earnest money will be returned to you if you decide not to purchase the property before the closing date.  Be sure you discuss your concern with your real estate agent and they will discuss the timelines you need to keep in mind when you make an offer on a home.  
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 01 2010
Hi Smitbrit,

An Earnest Money Deposit (EMD) is typically required with any transaction, not just REO's or Short Sales.  It's considered a good faith deposit and is usually a portion of your total down payment.  For example, if your purchase is for $200,000 and you're putting down $20,000 (10% of the purchase price) then your EMD would be $3000 (EMD's are usually up to 3% of the purchase price).  Your remaining down payment would then be $17,000.

In this market, most sellers are requiring to see "proof of funds" before they accept your offer.  This proof is a bank or financial statement showing that you have enough liquid funds to make your down payment and closing costs.

Your EMD is refundable as long as you complete your contractual obligations, even if you decide to pull out of the deal.  For instance, if you have agreed to complete your buyer investigation of the property (general inspection) within 17 days, then you must do that.  There are other continginces as well. If you decide that you are going to move forward with the purchase and you remove all of the continginces, at that point your EMD  is at risk to going to the seller if you then decide to pull out of the transaction.

Hope this helps.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 01 2010
A contract is not valid without consideration, aka your earnest money and it goes towards your down and/or closing. There is no such thing as non-refundable in CA as long as you meet the terms of your agreements but if you remove your purchase contingencies, the earnest moeny is at risk. Have a good Broker on your side is a good idea. Good luck.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 01 2010
yes, great question and so many Buyers forget that the earnest money deposit is subtracted from your contribution of down payment and closing costs. All properties have them, not just REO's and Short Sales. However, on Short Sales we have an Addendum that allows your deposit to sit still until the Seller provides you with proof of Lender approval on the Short Sale. Great safety net if your Agent and you decide to select this box on the Short Sale Addendum!!
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 01 2010
Earnest money deposits are required by many sellers and it does not necessarily have to be REO or shortsales. Regular sales require them as well. It shows how much you are willing to put down to assure the seller that you are a serious buyer because if you decided not to buy it without a legitimate reason, the seller can forfeit it. The earnest money is part of the down payment and the refund is not guaranteed to be the same as the amount of earnest money.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 31 2010
The earnest money deposit is a portion of your down payment that indicates that you are serious about purchasing the property just like Andrew said. Typically it is 3% but it can be more in a competitive situation. This deposit is refundable to the buyer if the seller fails to perform to the letter of the purchase contract or if there is a problem attempting to remove contingencies. If the buyer does not perform to the letter of the purchase agreement, it is possible that a deposit may be forfeited - it depends on how the contract is written. Your purchase contract will probably have a loan contingency (unless you're paying cash) and an inspection contingency at the very least. For example, if you are counting on obtaining a loan/mortgage and cannot do so within the loan contingency time frame set in the contract, you would have an "out" from the deal and then would get your earnest money deposit back. Hopefully your are working with a reputable agent as they should be able to guide you. Best of luck.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010
The money is applied as Andrew described.

As for whether it is refundable or not you should know that is is refundable only to the extent your transaction is terminated due to a permissible reason. In other words if you have an accepted contract but then you back out for some reason the seller may have grounds to retain your deposit.

So, the earnest money is refundable to the extent you've honored the terms of the contract.  In ALL cases the money is applied to your closing costs/down payment if you close escrow.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010
It is put towards your down payment. In REOs and Short Sales I make sure buyer is to hold on to earnest money deposit until acceptance in all my client's contracts to ensure that nothing is cashed until the bank approves the offer.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010
Earnest money is just money that you put down to show you are serious.  The funds are simply held until closing and will be applied to your down payment and or closing costs.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010
Profile picture for SoCal Engr
Whenever I have purchased, my earnest money was counted towards the down.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
October 30 2010
 
Related Questions
is earnest Money deposit meant to come from your Down payment funds/closing costs or addition to?
Profile picture for Eileen and Harry Talalas
Latest answer by Eileen and Harry Talalas
January 07 2011 | 18 answers
Mortgage Rates
 
Be A Good Neighbor

Zillow Advice depends on each member to keep it a safe, fun, and positive place. If you see abuse, flag it. More on our Good Neighbor Policy.

Homes for Sale
  1. 4067 Lincoln Ave, Culver City, CA Home For Sale
    4067 Lincoln Ave, Culver City, CA 90232

     For Sale: $1,125,000

    • Beds: 2
    • Sqft: 2060
    • Baths: 3.0
    • Lot: --
  2. 4067 Lincoln Ave APT 1, Culver City, CA Home For Sale
    4067 Lincoln Ave APT 1, Culver City, CA 90232

     For Sale: $1,125,000

    • Beds: 2
    • Sqft: 2060
    • Baths: 3.0
    • Lot: 13505
  3. 2826 S Holt Ave, Los Angeles, CA Home For Sale
    2826 S Holt Ave, Los Angeles, CA 90034

     For Sale: $789,000

    • Beds: 3
    • Sqft: 1442
    • Baths: 1.0
    • Lot: 4920
 
 
 
Sign in with Google