When you buy a house in the States, you are usually asked to pay an “earnest money deposit“, otherwise known as a “good faith deposit”. This amount is not the same as a down payment. Instead, when a property buyer signs a contract to buy a house, they agree to pay a certain amount in good faith. This deposit is to secure the contract. The contact also agrees on the amount to pay as down payment. The amount the buyer will pay can vary as there isn’t typically a set rule. For example, in California a contract must contain a clause about an earnest money deposit, but it can be as little as a dollar. The purpose of the earnest money deposit is to express the buyer’s commitment to buying a property. When you go through with the sale and close the contract, your earnest money deposit goes towards the total of the down payment.
Protecting Your Deposit
But how can you make sure you keep your money safe when you pay an earnest money deposit? If you aren’t careful, you could fall victim to a scam and someone could make off with your hard-earned cash. In order to avoid this happening, there are some rules you should follow. Firstly, you should never give the money directly to the property seller. Instead, it should be paid through a third party, such as a reputable real estate broker, legal firm or escrow company. The third party should deposit the money into a separately maintained trust account. And you should make sure to obtain a receipt for the payment. Don’t release your money until you have closed the deal on the property. You can then pay your downpayment and, once you’ve moved in, your mortgage payments too.
Getting Your Deposit Back
If you choose to withdraw from the contract, you may or may not be able to get your money back. This will depend on the law in your state, as well as your individual contract. In some places, you can withdraw and get your money back within a certain period. Cancelling the contract could result in a dispute if there isn’t agreement about whether the buyer has forfeited their deposit.
Other Methods of Protection
On top of making sure you pay your deposit through a third party, how else can you make sure you don’t lose any money? One way is by not putting the money forward in the first place, and this involves thoroughly inspecting the property. If you spot any potential problems before putting a deposit down, you eliminate the risk of losing your deposit later. When you work with estate agents in Letchworth or your local area, they can advise you about professional inspections of the property. A professional inspection is much more reliable than walking through the property by yourself.
Once you have made an offer, you can help yourself by reading the seller’s disclosures carefully. Making sure you understand all the information will help you make an educated choice about whether to buy. Knowing that you won’t change your mind is the key to protecting your deposit. If you definitely buy the property, you won’t lose any money.