Earnest Money – What Is it?
You have come up with an offer price. The next step is to determine how large a deposit you want to make with your offer. Your earnest money deposit” should be large enough to show the seller you are serious. But it should not be so large you are placing significant funds at risk.
One recommendation is to make sure your deposit is less than 2-3 percentof your offered price. Otherwise the lender will pay particular attention to how you came up with the funds. You might have to provide proof showing you had the money to begin with. Normally, this is not a problem. If you barely coming up with your down payment it could pose an inconvenience.
Another reason to limit your deposit is “just in case.” Although significant problems are the exception and not the rule, they do occur. “Just in case” there is a nasty or prolonged dispute between you and the seller, the less money you have tied up in a deposit, the fewer funds you have placed at risk.
As with practically everything in real estate, there are exceptions to this rule, too. During a hot market there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your unknown competitor is offering the same price or slightly higher.
Since large deposits do impress sellers, you may also find that by making a large deposit you can convince the seller to accept a lower offer. More money up front may save you money later.
There are also times when closing can be delayed by weeks, through no fault of your own. Have back-ˇup plans prepared for such a contingency.