Earnest Money?
ByEarnest Money?
Is earnest money needed if giving full asking price ??
Ok so I asked this question before and almost everyone said yes and it is applied to either down payment or closing costs. But I didnt get to in detail of my situation so I want to see if it would change anything like the amount of earnest money I should give.
My loan is going to be a VA Loan so has 0 down my bank pays closing costs as a promotion. So say I give 2000 dollars earnest money that gets put to the principle of the loan right? And when your talking that little $ dosent make a big differance I would rather keep it in savings for any problems that should arise. In the market we are in right now where I live there are a ton of properties and the one we been looking at has been on the market since sept of last year so im thinking why should they think im not serious people are desperate to sell homes why would they not exept an offer which is the asking price because of no earnest money ??
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Kate has given you the right answer on this one! Still make sure your contract doesn't state that the earnest money must be applied toward down payment. I have helped a few clients do the exact same thing you are about to pull off (buying a house with absolutely nothing out of pocket, except the cost of a home inspection). Congrats!
The earnest money is treated in the same manner as the downpayment. It just happens before closing instead of at closing.
Some people think that if you do not give a large earnest money deposit, they don't take you seriously. This is because you are putting up very little risk in signing the contract and can walk away at any time and all you would lose is the earnest money. It is a matter of the amount of risk they are taking compared to the amount of risk you are taking.
Offer contracts that do not have earnest money are usually not enforceable. If you do not offer some earnest money, you are risking nothing and they are risking a lot.
BTW a 0% down purchase is NOT a good idea. It means you have no equity in home and you will NOT be building any equity for years. If home prices go down, you end up owing more than your home is worth. STRONGLY advise you to make extra $25 principal payments every month first year to establish some equity in home. It will GREATLY reduce amount of interest you pay over the life of the loan. If you are unable to save up for a down payment, are you really able to manage your finances and be a homeowner? Most of these foreclosures are people who had 100% loans, and found they weren't ready to be homeowners.
It will be reflected on the bottom of the first page of your settlement statement in one of 2 boxes:
[ ] Funds due from borrower [ ] Funds paid to borrower
More common for a VA earnest money to be $500 & sometimes they still get money refunded at closing.