Earnest money is a deposit made by buyers to demonstrate their commitment to purchasing a home, typically ranging from 1% to 3% of the purchase price. Held by a neutral third party until closing, this deposit serves to protect both the buyer and seller. At closing, it is credited toward the buyer's down payment or closing costs, and if it exceeds the amounts owed, buyers may receive a refund, especially with loans that do not require a down payment, enhancing confidence in the homebuying process.
In a real estate transaction, earnest money serves as a crucial good-faith deposit to signal a buyer's serious intent to purchase a home.
At closing, earnest money is applied to either the buyer’s down payment or can help cover closing costs, ensuring it plays a vital role financially.
Understanding the role of earnest money can enhance a buyer’s confidence, offering clarity on what to expect during the homebuying process and at closing.
If the earnest money exceeds what is owed at closing, buyers may receive a refund, particularly in cases where no down payment is required.
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