Adventures of a First Time Home Buyer! Part 3 - Earnest? What the heck is earnest?

Welcome back to
The Adventures of a First Time Home Buyer

Today, we'll go over Part 3 ~ Earnest?  What the heck is earnest?

 Now, this is actually something that we found out AFTER we found our house so I'm doing this a little backwards.  I wanted to make sure that y'all knew about this expense BEFORE you found the house of your dreams and made an offer.

 Surprise # 6...WHAT?  We have to have cash to buy a house?  Who knew?!?

 As a First Time Home Buyer I had a lot of of which was, 
“Are there any “out-of-pocket” expenses do I need to plan for ? 
{talking $$ outside of your down payment and closing costs}

Many loan programs today require very little cold hard cash.  But there are a few instances in the home buying process where you will need to have some dough.

Also known as: good faith deposit or binder

Earnest money is money that accompanies an offer to purchase real estate. It is usually held in a real estate broker's trust account until the property changes hands. It is credited to the buyer's funds/down payment at settlement.

Earnest money accomplishes a few thing:

1) It conveys that your intention to purchase the property is serious.
2) It can help  demonstrate your financial ability to satisfy the contract and strengthen your position as a solid, qualified buyer.
3) It provides remedial damages for the Seller in the event that you back out of the contract for a reason not stipulated in the contract
The actual amount of earnest money will vary with each particular market. In general, it will represent between 1 to 2 percent of your offer price. If your offer is accepted, the earnest money will be deposited into a trust account or with the escrow company, shortly after acceptance. At closing, this money is applied to your closing costs or down payment.