Earnest Money Deposits
Question: How much of a deposit should I put down on a house when I buy? I am buying a $500,000 house.
Answer: There are many ways to answer that question and many depend on the type of loan and the desires of the seller. If your financing is going to be through FHA, with a low down payment of 3.5%, then your deposit will likely be lower. I would suggest a $5000 deposit on the house you described. Anything lower will likely make the seller think you are not very committed to this house. Of course the seller can counter your offer and ask for a higher deposit as well. Generally a higher deposit signifies that the buyer is serious about the purchase of the home and the seller can be swayed by the higher level of financial commitment. As a side note once the offer has been accepted the buyer has three business days to get the deposit check into escrow and escrow will cash that check. Be sure you have those funds available in your account to avoid your check bouncing. That would be an embarrassing way to start a transaction. When purchasing a home you can expect that the deposit will be at the least 1% of the purchase price and could go up to 3% or more. A home with a purchase price of $1,000,000 would require a minimum of $10,000 and that would likely be countered to a higher amount. Especially if the buyer is doing a conventional 20% down loan, it would be expected that they would deposit $20,000 or more. While a higher deposit is a good sign of a serious buyer, it does not mean that the deposit is the property of the seller once it is in escrow. Deposit money is the property of the buyer until they have removed all their contingencies in the transaction. At that point, if the buyer cancels the transaction, it is likely that the deposit will go to the seller. The removal of contingencies is an active process by the buyer and should be taken very seriously. If you remove the loan contingency and then the loan fails to be granted, you could lose your deposit. You want to be careful to protect your deposit money in any transaction. Be sure to work with your agent to understand this part of the purchase. In a real estate transaction the buyer has options to cancel whereas the seller has fewer options once the contract is signed. The best advice would be to give the seller as large a deposit as you feel comfortable with to help secure the home you desire.