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  • Writer's pictureJoseph Gunerman

What is an Earnest Money Deposit (EMD)?

When purchasing a home, buyers always want to have a full understanding of their financial responsibilities throughout the process. How much money is owed out of pocket and when is that money due? Well the first check that you will write when you get under contract on your dream home is your earnest money deposit - also known as EMD.

The earnest money deposit is basically a show of good faith from the buyer to the seller. It is money that you are putting down up front to show that you fully intend to follow through with the contract and close on your scheduled settlement date. Your check is deposited into an escrow account, which means the check is delivered to the Title Company acting as the middle-man in your transaction, within 5 days of your offer being accepted. The title company holds onto your earnest money, and assuming that you follow through with your end of the contract and make it to the closing table, that earnest money is applied directly to the down payment.

So YES, the earnest money is applied towards your down payment at closing and is not ADDITIONAL money that you owe in the transaction. You can look at it as pre-paying a portion of your down payment to show the seller that you do in fact have the money and you fully intend to purchase their home. The only way that you would lose your earnest money is if you backed out of the contract, outside of your allowed contingency periods, before closing therefore violating the terms of the contract.

How much earnest money is typically put down? It is most often between 1-5% of the sale price. The more earnest money you are willing to put down the stronger your offer will look to the seller because it is a bigger statement of good faith. Most sellers are concerned with one thing above all else - that the buyer can be relied on to close the deal and close on time. So the more money you put down up front to show that you can do that, the seller's will be more inclined to take your offer!

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