When you're shopping for real estate and find one you want to buy, you will need to write up an offer for the home. With the offer, you must enclose a check which is considered your earnest money. This is a standard part of buying a house, but you may wonder what happens to this money if you back out of the deal. Here are several important things to know about earnest money:
Why Is It Required?
First of all, you should understand why you need earnest money when buying a house, and the main reason is to show that you are committed and serious about buying the house. If you put nothing down with your offer, you would have nothing to lose. Because of this, you will typically be required to put down around 1% of the selling price of the house. In some cases, people put down more or less than this, but your real estate agent will tell you how much you need.
What Happens to the Money If You Back Out?
If you decide to back out of the deal after making your offer and putting money down, you may want to know what will happen to the money you put down. This is a good question, and it is important to understand how this works before making an offer.
When a buyer backs out of the deal, there are two main things that can happen with the earnest money, but it will depend on why you backed out of the deal. Here are the two things that could potentially happen:
- You could get the money back – If there is a major defect with the house, or if the seller will not agree to something you asked for, you can get this money back if you back out of the deal.
- The seller could keep the money – The seller will have the right to keep this money if you do not have a valid reason for backing out of the deal. For example, if you found a house you like better and now want to back out, you will lose your earnest money.
If you want to avoid losing earnest money, you should make sure you are certain that you want to buy the house, and you should make sure your purchase offer includes contingencies that allow you to back out for valid reasons.
Buying a home is a process that requires a lot of work and thought. If you are ready to begin the process, you should hire a real estate agent to help you find a house to buy.