When you have reached an agreement with the seller on the purchase of a home, an initial deposit, or earnest money, is required. Usually, the amount consists of one to two percent of the total price of the residence. For example, if you are buying a $300,000 home, you may expect to pay $3,000 to $6,000 as your initial deposit.
Earnest money is one of the many expenses associated with buying a home. The deposit of money, typically at the signing of the real estate purchase contract, confirms your serious intent to buy the property. It constitutes a good faith gesture that after you have paid the deposit, you will not continue shopping for other homes, and the seller may reasonably expect to complete the sale. If all goes as well through the closing of the sale, the earnest money becomes part of the purchase price and goes toward the entire purchase price. Until the closing, the earnest money is held in an escrow account between the buyer and the seller.
If circumstances prevent the purchase of the home, such as the inability of the buyer to secure financing, the buyer may be eligible to get back the earnest money if the contract contains a contingency on the issue that is preventing the purchase.