What is earnest money? Many first-time home buyers are unaware of what earnest money is and why it is important in a real estate transaction.
Earnest money is a "good faith deposit" it shows that you are serious about purchasing the home and it's a promise to do your due diligence and follow the contract. It shows you have ski in the game. It is paid up front and if you offer a larger amount of earnest money, it can help your offer stick out. Usually no more than 1% of the selling price is requested but you can always offer more in earnest money to have a stronger offer. Once the seller accepts your offer and you take the earnest money to the title company, the house is taken off the market and the process of selling you the home can start. Earnest money is refundable during the due diligence period. The due diligence period is when you as the buyer make sure the home is right for you. this includes hiring an inspector to check the home. Practice driving to work from the home. Check out the neighborhood and look through the HOA documents and fees. If you find anything that is a deal breaker to you during this period, then you can cancel and get your earnest money refunded. Now, if you are moving full speed ahead and have already gone through inspection, appraisal, and your lender has given you the go ahead and then you decide to cancel then the seller is intitled to your earnest money. At this point in the game to cancel it would be considered breach of contract and the seller is intitled to the earnest money for damages.