(Question) As I’ve been looking looking at houses and deciding if I want to go under contract I’ve been reading a lot about earnest money. Can you let me know a little bit more about what earnest money is?
(Answer) Earnest money is like a good faith deposit on the transaction. So the easiest way to look at it is almost like a deposit for a property that you’re going to rent. But in a situation like this what you’re doing is you’re saying to a seller “we’ve come to terms, I want to purchase your home”. Earnest money equals about 1% of the total purchase price. So you’ll bring in that 1% deposit and it sits in an escrow account but it takes the house off the market and allows you to perform all of the inspections, appraisals, go through the qualifications, everything you can possibly do to protect you. If you close then you get that earnest money back as a credit against the down payment. If you just decide after you’ve done all those things that you’re walking away from the transaction and the seller has lost that time on the market you’ll lose the earnest money and it will go to the seller.