Do You Get Your Earnest Money Back at Closing?
Do You Get Your Earnest Money Back at Closing?
Do You Get Your Earnest Money Back at Closing?
If you’re in the process of purchasing a house and intend to secure a mortgage for the transaction, you’re likely to encounter a common question. In brief, it’s important to note that earnest money is typically not refunded at closing.
However, there are instances where earnest money can be returned during the closing process. Curious to learn more? Keep reading to discover what occurs with your earnest money when closing the deal.
What is earnest money?
Are you unsure about the meaning of “earnest money” that keeps coming up in the home purchase process? It’s also known as “good-faith money” or a deposit, and it represents a sum of money that home buyers provide when making an offer on a house to demonstrate their commitment to the purchase.
Typically ranging from 1% to 2% of the intended house price, earnest money is submitted by the buyer within five days of the seller accepting the offer. An escrow agent then collects and deposits this money into an account.
You may have heard the term “going into escrow” in relation to earnest money. That’s because the escrow officer safeguards the earnest money while you proceed with the steps of buying a house, such as obtaining an appraisal for the bank’s approval or having a home inspection to ensure there are no valid reasons to back out of the deal. Neither the escrow officer nor the seller can access that money during this period.
Do I get my earnest money back at closing?
Once the appraisal confirms a price that satisfies your lender and the home inspection doesn’t uncover any concerning issues, you’ll reach the closing stage—the culmination of the home-buying process—where you make the payment to the seller and receive the keys to your new home.
During this time, your escrow agent will withdraw your earnest money from escrow. What happens next depends on the type of earnest money that was initially deposited. If you deposited cash (which is usually the case), the earnest money is typically applied to cover closing costs or contribute to your down payment—the portion of the sale price that buyers pay on their own, alongside the mortgage.
However, there are circumstances where you may receive a refund of the earnest money. For instance, if you have obtained a loan that doesn’t require a down payment, such as a Veterans Affairs loan or a mortgage backed by the U.S. Department of Agriculture, the earnest money will be utilized for closing costs instead of the down payment. If there is any surplus remaining after covering the closing costs, it will be returned to you.
Experts in Residential Real Estate in Orlando
If you are BUYING or SELLING real estate it’s quiet often the single most important financial decision you make. For the last 30 years we have helped clients buying and selling property in Orlando and the surrounding areas. Put simply, this means the knowledge and expertise accumulated over this time ensures our clients get the best representation possible.
Our experienced agents will help and guide you through the entire process providing valuable support every step of the way.
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