If you’re in the market to buy a home, you’re probably familiar with earnest money deposits. In most cases, if the transaction falls through, the buyer gets their deposit back. But what happens if you get cold feet or don’t hold up your end of the bargain? The seller is entitled to keep it. This guide explains what could happen to cause you to lose your earnest money deposit.
Could You Lose Your Earnest Money Deposit?
When you make an offer on a home, the seller will usually require an earnest money deposit. This deposit is typically between 1 and 5 percent of the purchase price and is held in escrow by the title company or real estate agent. The purpose of the deposit is to show that you’re serious about buying the home and to provide some financial protection to the seller in case you back out of the deal.
If everything goes smoothly and you close on the home, the earnest money deposit will go toward your down payment or closing costs. But if something goes wrong and the deal falls through, you should get your deposit back. The most common reasons for a deal to fall through are financing, appraisal, and home inspection contingencies. The following sections explain.
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Financing Contingencies
If you’re not able to secure financing for the home, you should be able to get your earnest money deposit back. Your contract should have a financing contingency that allows you to back out of the deal and get your deposit refunded if you’re not able to get a loan.
Appraisal Contingencies
An appraisal is a professional estimate of the value of a home. If the appraisal comes in lower than the purchase price, you may be able to back out of the deal and get your earnest money deposit refunded. This is called an appraisal contingency.
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Home Inspection Contingencies
A home inspection is a thorough examination of the condition of a home. If the inspection reveals significant problems, you may be able to back out of the deal and get your earnest money deposit refunded. This is called a home inspection contingency.
Cold Feet or Breach of Contract
If you simply change your mind about buying the home, you will likely lose your earnest money deposit. The same is true if you breach the contract in some way, such as by not making a good-faith effort to secure financing.
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Are You Buying a Home or Land for Sale in Lake City?
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