Tuesday, July 27, 2010

Is Earnest Money Part of the Down Payment?

Buyers often ask us if the earnest money check they write when they make an offer on a house is part of the down payment.

The answer is YES. The earnest money check is a good-faith deposit to demonstrate to the seller that the buyer is serious about the transaction. If the transaction closes, the earnest money deposit can be counted as part of the down payment.

In addition, if the earnest money deposit is larger than the required down payment, then any excess amount can be applied towards the buyer's closing costs.

If there is any money left over after the earnest money is used for the down payment and the closing costs, then the buyer will receive a refund at the closing. A good example of when this might happen is when a buyer gets 100% VA financing and the seller agrees to pay the buyer's closing costs. There is no down payment with a VA loan, and if the seller agreed to pay the buyer's closing costs, then 100% of the earnest money would be refunded to the buyer at closing.

No comments: