How to Properly Give & Document an Earnest Money Deposit (EMD)

What Is an Earnest Money Deposit?

It’s a good faith deposit, not to be confused with a down payment. When buyers execute a purchase contract, the contract specifies how much money the buyer is initially putting up to secure the contract to show good faith. An earnest money deposit tells the seller you are a committed buyer.

The earnest money deposit will be credited towards the down payment at closing and the balance is generally financed as a mortgage or a combination of mortgages.

When Do You Pay the Earnest Money, and Who Holds It?

In most cases, after your offer is accepted and you sign the purchase agreement, you give your earnest money deposit to the title company. In some states, the real estate broker holds the deposit. Once the seller and the buyer both have signed the contract, the buyer should issue a check for his earnest money deposit to an escrow account, which is held by a real estate brokerage. That means you make out your check to a real estate brokerage or title company, not an individual.

What You Should Know Before Making an Earnest Money Deposit?

If you are going to receive gift funds for the closing on your new home, you will want to discuss this with your lender up front.  Read – How to Use Gift Funds to Buy a Home. Your lender will have specific instructions for receiving gift funds depending on your loan program.

How to Properly Receive Gift Funds for A Mortgage

One very important thing to remember when sending in funds to close is to make sure the funds are coming from a source that has already been verified by your lender or you may not close on time. Lenders want to know that this money does belong to you and accurately represents your ability to fund a home purchase.

You will need to provide evidence of all source funds needed for the closing. These would include copies of checks, direct deposits, and copies of bank statements.

Can You Get Your Earnest Money Back?

If the deal falls through, the deposit will be handled per the terms of the purchase agreement. Make sure you check with your realtor regarding how a refund is handled.

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DISCLAIMER: All loans are subject to credit approval and underwriting approval. This is not a commitment to lend.

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