The topic of earnest money is always a hot issue. Many buyers wonder how much they should put down, and they also wonder why they have to put money down at all, when they haven’t even gone through the closing. But most of all, a buyers main concern is whether or not they’ll ever see that money again if something goes wrong. You should know, that if the seller has gotten multiple offers, and their house is very likely to sell regardless, they more than likely won’t try to keep your money if you back out, as they’ve got plenty more buyers where you came from. However, if the seller is desperate, and you’re the first buyer they’ve seen all year, it’s another story. See: What’s the ‘Earnest Money Depsosit’ On a Home Purchase?
Any time you look to purchase a house, you’re going to have to put down a deposit. This is to show the seller you are serious, and, to secure the deal. When deciding how much to put down, you should ask yourself how much you’re okay with losing, should something bad happen. When writing the check, assume that you aren’t going to see the money ever again. In other words, determine what you’re willing to lose.
Usually, it will be either the real estate broker or a closing agent who holds the earnest money deposit. Make sure that they honor any and all of your rights before you hand over the check. Ask whether or not you will have a right to cancel with a refund. If you want to include an inspection contingency, you need to let them know that. Write a clause stating that if a, b, or c issues arise with the inspection, that you’ll get your deposit back. Be very clear regarding contingencies and earnest money. Read: The Earnest Money Deposit: What You Should Know.
Never rely on the finance contingency as a reason to change your mind. If you can’t get financed for the house, you shouldn’t expect to get your earnest money back. It’s not the sellers fault that you didn’t find out whether or not you could even get approved for the loan before you put down a deposit. That is your responsibility, and you can’t use that as an excuse if the bank won’t approve you. Never put an offer in for a home if you haven’t first found out whether or not you can buy it!
If you change your mind about buying the house, realize that it is likely you will lose your deposit. After all, thats the whole point of earnest money. As with most things in life, a deposit is forfeited when you do not purchase whatever it is you put down the deposit for. Deposits are meant to protect the seller.