When you find and fall in love with a Lake of the Ozarks home, you’ll put in an offer. Once the seller accepts the offer, you enter escrow. At that time, you must put down your earnest money deposit. At this point, you might be asking yourself “what is earnest money? Where does it go? What happens to it if the sale falls through?” Read on to learn more.
Earnest Money and the Lake Ozark Home Buyer
What is Earnest Money?
Also known as “good faith money”, earnest money is an amount of money buyers provide upfront to show their commitment to the purchase of the house. Sometimes, you put up $500 to $1000 in good faith. Other times, you may need to put a percentage of the purchase price down (usually 1-2%). This money enters into a separate deposit held by the escrow company throughout the entire sale process. No one else can access it…not you and not the seller.
Where Does it Go After We Close?
Once the final sale happens, where does the good faith money go? As long as you put down cash/check, it gets credited to either your closing costs or down payment. However, for VA loans or other “no money down” loans, any good faith money goes toward your closing costs. In some instances, your “good faith deposit” may not actually be money. Some sellers accept jewelry, boats, cars, and even other real estate in lieu of money. In that case, either it gets returned to the buyer or the seller may liquidate it and apply the money received towards the purchase price of the home.
What if the Sale Falls Through?
A small percentage of real estate sales fall through escrow at some point. Maybe the appraisal falls short. Or big issues arise during an inspection. Perhaps your bank declines your loan. When that happens, where does the earnest money deposit go? If you have a contingency in place for any of these events, the escrow company returns your money directly to you. However, if you decide to walk away from a sale without any contingency in place, that money goes to the seller. Talk to your real estate agent about how to protect yourself in these situations.