Mortgage Loans

[ladylpk74]

I have a few questions:

1. What exactly is it used for?

2. Are all buyers required to put it up? If so how much?

3. At what point does this transaction take place?

4. Is it refundable if the deal falls through?

5. Who holds on to this money?

6. Is it applied toward the down payment or closing costs?

Can you tell I am a first time home buyer? I just want to know as much as I can before I start the home buying process. Thanks.

[HelpMe01]

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ladylpk74 wrote:

I have a few questions:

1. What exactly is it used for?

2. Are all buyers required to put it up? If so how much?

3. At what point does this transaction take place?

4. Is it refundable if the deal falls through?

5. Who holds on to this money?

6. Is it applied toward the down payment or closing costs?

Can you tell I am a first time home buyer? I just want to know as much as I can before I start the home buying process. Thanks.

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1. Earnest Money Deposit, also known as EMD, is used when signing a contract to show the seller that you are serious in purchasing their house. Anyone can go around signing contracts, but if you have money invested via EMD, no matter how little, it shows the seller you have every intent of buying the house and not wasting either their time or yours.

2. Usually yes, although working in real estate I have seen some buyers who didn't (I know there are some agents on this forum please correct me if I'm wrong! )

3. EMD is usually given right after signing the contract.

4. No, unless there is a contingency clause in the contract stating which circumstances would allow it to be refundable.

5. The buyers agent does, unless you don't have one and then it can either go to the seller, sellers agent, or title company.

6. Yes

Hope that helps!

[ladylpk74]

Thanks. You helped clear up some questions I had swimming around in my head. One more if you will. Who decides how much needs to be put up?

[househunting]

Following up on #6 - does the earnest money go to downpayment OR closing costs?

In other words, if I put up $3500 in earnest money, would that go toward paying my closing costs, or be put into my downpayment pot for PMI calculation, etc?

Thanks!

[strictnein]

When we put $2000 in earnest money down, we specified that we needed it to be used towards our down payment.

Not sure if that's normal, but we discussed it with our realtor and he said it was ok.

[ShanetheMortgageMan]

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househunting wrote:

Following up on #6 - does the earnest money go to downpayment OR closing costs?

In other words, if I put up $3500 in earnest money, would that go toward paying my closing costs, or be put into my downpayment pot for PMI calculation, etc?

Thanks!

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It actually depends... it depends on if you are paying your closing costs or not, the loan amount you apply for, the sales price, and any seller credit.  The closing statement (Final HUD-1) is basically a bunch of credits & debits.  The credits are items like your earnest money deposit, new mortgage amount, and seller credit (if you & the seller agreed on one in the purchase contract).  Debits are the sales price & settlement costs (closing costs + pre-paid items/reserves togheter make up the settlement costs).  The settlement costs have to be paid first and next is the difference between sales price & new loan amount (that difference is the down payment). 

So if you have a loan amount of $100k, a sales price of $100k, settlement costs of $5k, earnest money of $2k, seller credit of $3k... your $2k earnest money would go towards the difference between seller credit of $3k & settlement costs of $5k, thereby leaving no money leftover.  If you specify the $2k goes towards the down payment, then you wouldn't apply for a loan amount of $100k, you'd apply for a loan amount of $98k, thereby creating the need for the $2k down payment.

[Lady_Scarlet]

1. What exactly is it used for? To show you are serious about buying the house.  The amount is negotiable - and can vary also with your financing. 

2. Are all buyers required to put it up? If so how much? Amount varies but as a listing agent I want some type of assurance to the seller that any loss they sustain will be covered (perhaps partially) if the buyer defaults.

3. At what point does this transaction take place?  When you submit the contract there should be a check with it.

4. Is it refundable if the deal falls through? Depends on the reason for the fall thru

5. Who holds on to this money? Depends on circumstances - if a quick close easier for the title company to hold it, otherwise usually my Broker.  If an REO property - they may have their own rules.

6. Is it applied toward the down payment or closing costs?  YES - is credited to the total amount due at settlement.  We actually walked from the table with thousands of the seller's money (in a check payable to us) - 0% down VA loan, not required to pay property taxes - seller was perturbed (just means I cut a good deal) - they didn't know (and I wasn't obligated to tell them) that we have a state exemption on property taxes that I schmoozed the tax guy to process it in time for settlement -  otherwise I would have had to pay the taxes and wait for a refund after the exemption was processed.

Contracts and how things are routinely done varies form state to state and even within different jurisdictions within the state.  Montgomery County contracts here are usually 40-50 pages, Frederick is 30-40 - addendums, required disclosures, etc all vary - as does state law requiring certain disclosures.  In MC  as of April 1, 2008 - the seller has to actually calculate and disclose to the buyer what the Buyer's property taxes will be (use to be we disclosed the seller's amount).

My  best advice is to hire a  BUYER'S AGENT familiar with the area you want to buy in.