Everything You Need to Learn About Earnest Money

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You're not alone if you're confused by real estate jargon. 

Learning these terms helps avoid misunderstandings during the home purchase agreement. What follows here is everything you need to know about earnest money and an earnest money deposit.

What Is Earnest Money?

Earnest money is used while buying and selling a house. It is the sum of money the buyer deposits to get into a purchase agreement with the seller. It is also called a “good faith deposit.”

Once the seller is comfortable with the offer, the two parties go into a purchase contract.

House closing takes time through inspection, appraisal, and funding. Therefore, the earnest money is compensation for the risk if the deal falls through.

Earnest money essentially works as an assurance to the seller for his consideration of the buyer's offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home.

What Role Does Earnest Money Play?

The earnest money is usually not mandatory, but it plays a vital role in the sellers' market. It is due within three days after the effective date of the purchase agreement.

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