Earnest Money Mortgage

Even if you are obtaining a mortgage that requires no down payment, such as through government programs, the seller will still expect an earnest money deposit.

Earnest money deposits are usually 1 percent to 3 percent of a home’s purchase price, depending on local custom and the pace of current market conditions (the faster the market pace, the higher the deposit).

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Earnest money is an amount, typically one to two percent of the sales price, which is deposited with an escrow agent or title company. If the sales price is $300,000, you can expect to pay up to $6,000 as an earnest money deposit, depending on local custom and strength of the local housing market.

During closing, the earnest money deposit can be used to reduce the amount of down payment. For example, if you are buying a home for $200,000 and want to put 20 percent down, your down payment will be $40,000. If the earnest money deposit is for 3 percent or $6,000, you would be required to provide a down payment of $34,000.

If you read a sales contract carefully, and you should if you haven't, you'll soon realize it's pretty serious.

Just to be clear, earnest money is not your down payment. Your down payment is completely separate and should be 10-20% of the purchase price with a 15-year fixed-rate mortgage . However, if everything goes the way it’s supposed to, the earnest money will get folded into your closing costs.

There are different regulations on the earnest money limits depending on the state. In some instances where you may not be able to make a large enough down payment, you may have to make a larger-than-normal earnest money deposit to prove that you will be able to make future mortgage payments.

the sellers retain the earnest money deposit. homeowners putting down less than 20 percent may be required to put additional money at closing into an escrow account. The lender will use this money,