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Hi guys I have a question hope you guys can help. I am thinking about buying a house in huntington for $345K, the real estate agent at the open house told me that the seller wants 20k+ in earnest money. Is this the norm on LI, I was thinking more like 1-2%. In any case the seller rejected my offer b/c i only wanted to put down 7K. I am a first time buyer so I am new to all this. Advice appreciated.
When you say "earnest money" do you mean downpayment? $7,000 down on a $345,000 purchase is rather low (it's only 2%). Most sellers like to see at least 5% to 10% down. However, if you are already pre-approved for a low down payment mortgage program (yes, they still exist), it should not be as much of an issue. Have you spoken to a mortgage banker yet?
The reason that seller's like to see as much money down as possible is because it increases the chances of the buyer's mortgage going through. Sellers do not want to take their homes off of the market and then find out two or three months down the line that you cannot get the mortgage. The stronger you can make your offer in terms of down payment and mortgage pre-approval, the better chance you will have of getting it accepted.
I am already pre-approved 100% financing 380K@6.7% fixed rate, the earnest money from what I understand is deposit to show the seller that my offer is legitimate. My problem with putting down a large amount is fear of loosing the money in case something comes up. This is the money that goes towards closing.
This is the old give and take of negotiation. The seller wants the buyer to be more at risk, and they buyer wants to minimize risk. I really would not be concerned about putting more money up front, if you have it. Your contract should contain a "mortgage contingency clause" that states that if you cannot get your mortgage, then you get your money back. The only way that you generally lose your down payment is if you willfully default on the contract. This hardly ever happens. You will want to discuss it with your attorney, though.
Also, do you have a "pre-approval" or a "pre-qualification"? Many consumers confuse these two things. A pre-qualification is when, based on some preliminary information and a credit check, the lender gives you a letter that says you are qualified for the loan subject to certain conditions. A pre-approval means you have gone through the entire mortgage process (proving income, assets, credit, etc.) and you have been fully approved for the loan and just need to find the property. Obviously, a pre-approval is a much stronger position to be in.
I am already pre-approved 100% financing 380K@6.7% fixed rate, the earnest money from what I understand is deposit to show the seller that my offer is legitimate. My problem with putting down a large amount is fear of loosing the money in case something comes up. This is the money that goes towards closing.
In order for your offer to be legitimate (Legal) you and the seller will need to sign a contract to purchase the property. Do not give anyone a check for "earnest money." When you find a home and make an offer that the seller accepts, contact a real estate attorney prior to signing the contract. The written offer you make with a real estate agent is not the contract. Earnest money is not the same as a downpayment. A downpayment is held in an escrow account by an attorney, while earnest money is a check generally given to the seller when you make the initial offer, as a token of good faith, and is not required. It may also be very difficult to get back if something goes wrong.
In order for your offer to be legitimate (Legal) you and the seller will need to sign a contract to purchase the property. Do not give anyone a check for "earnest money." When you find a home and make an offer that the seller accepts, contact a real estate attorney prior to signing the contract. The written offer you make with a real estate agent is not the contract. Earnest money is not the same as a downpayment. A downpayment is held in an escrow account by an attorney, while earnest money is a check generally given to the seller when you make the initial offer, as a token of good faith, and is not required. It may also be very difficult to get back if something goes wrong.
Generally, today, earnest money deposits are not used. And, by the way, a binder and accepted offer mean nothing. Until you are in contract, anything goes (both for the buyer and seller).
I am already pre-approved 100% financing 380K@6.7% fixed rate, the earnest money from what I understand is deposit to show the seller that my offer is legitimate. My problem with putting down a large amount is fear of loosing the money in case something comes up. This is the money that goes towards closing.
I do not know your personal financial situation, but in the present market, are you not at all concerned about financing a home at almost 100% particularly in a softer market that might not have bottomed? Of course there is different risk if you put 20% down and technically lose equity on paper but it also gives you a cushion for a housing price decline in case you need to sell unexpectedly and do not want to be short of your total mortgage. Makes me squeamish...
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My son has a friend in the Boston area who put down zero on a $550,000 home. She is a Brazilian imigrant (not legal) who worked as a cleaning person and who probably earned less than $30,000 a year. Now the house is worth half that (it was probably never worth what she paid for it) and the house is in foreclosure and she has lost everything.
The seller of the home I am buying in Sound Beach wanted 10K in earnest money. We were equally as surprised and figured our measly 1K would be enough. We settled on 5K...but I got an earful about how this is the state of the market these days. Once again...all real estate is local! IN Utah, where I am selling my home, 1K would be plenty for earnest money.
I was also told (as Tom says) that the earnest money will not be used and I would get it back. It is more for the warm fuzzys of the seller. Best to work this with your lawyer.
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No offense but...
