Earnest Money Can Improve Your Home Buying Offer but There Are Risks Involved

When you begin your negotiations to acquire a home the real estate agent will question you about earnest money. You must have a clear idea of what earnest money is and the risks associated before you decide to include it in your offer. What Is Earnest Money? Earnest money is your guarantee to the individual selling the home that you are intent on purchasing. In your offer to buy the home you’ll include a cash deposit as an indication to the seller your degree of dedication to proceed with the purchase. Earnest money is considered as a part of the down payment for the home only it’s provided in advance of closing the deal. This is your promise to the seller that you will not back out of the offer so long as your conditions are fulfilled. Take note of this because it is going to be revisited when we focus on risks. What’s the Big Issue With Earnest Money? When confronted with multiple offers on the home that you are competing for you can use earnest money to make your offer get noticed. It shows that you’re serious. A seller might even give more interest to an offer with earnest money than to a marginally higher offer. They see the offer of earnest money attached as having a better chance of a final sale. How Much Earnest Money Is Sufficient? Any earnest money that you include should be enough so the seller knows that you are motivated. There is no need to go by a predetermined percentage so disregard any counsel that you get about this. Consider if you were the seller. How much money would demonstrate to you that this is a serious offer? Anywhere around $1000 is a good starting point and you could pay more provided that you understand the risks. Aside from the amount to pay you must also look at options for managing the money. The earnest money should not be given to the owner of the home. An understanding must be arrived at on a third party who will hold the earnest money. This could possibly be the real estate broker or a title company. The check or funds will be held in escrow until the deal is either completed or fails. Based on the elements involved in a failure you may or may not have to forfeit the money. That said let’s examine the risks. The Risks of Earnest Money – Things You Should Be Aware Of! Offering earnest money increases your risk of loss as a buyer. You must properly word the offer to include all situations where you wouldn’t proceed with the deal and the earnest money will be returned to you. If you walk away from the deal without one of the listed items being the cause the seller will keep the earnest money. What sort of items needs to be in your list of deal breakers? If financing is not pre-approved, make sure to include a stipulation the deal is dependent on finance approval. Always ensure the offer contains the stipulation the home must pass a home inspection and a termite inspection. Before you offer earnest money have a hard look at the property. Instead of looking with excited eyes this time hunt for details. Make sure any issues which must be answered are included in your list of stipulations. If you carefully word your offer and use a third party to hold your money in escrow you will substantially reduce your risks. Although earnest money can increase your bargaining power you need to use it wisely. The following are some fantastic web sites to get additional info on bad credit mortgage loans and even fha loan rates