Home buying is an exciting journey that comes with several stages. After finding your dream home and agreeing on the purchase price, the next step is to sign a home buying contract and make a deposit. The deposit is a show of your commitment to the purchase and is a critical part of the home buying process.
In this article, we will explore the significance of a home buying contract deposit and what you need to know before making one.
What is a Home Buying Contract Deposit?
A home buying contract deposit is a sum of money paid by the buyer to the seller as a show of good faith. It is usually a percentage of the home`s purchase price, which is agreed upon when signing the sales contract. The deposit is also commonly known as an Earnest Money Deposit (EMD), and it is held in escrow until the closing of the sale.
The deposit is essential because it provides a level of protection for the seller against any potential losses incurred should the buyer back out of the sale. The deposit also gives the buyer a sense of security that the seller is committed to selling the home.
How much should you pay for a Home Buying Contract Deposit?
The deposit amount varies based on the local market conditions and the purchase price of the property. The standard deposit is around 1% to 2% of the purchase price, but it can be as high as 10% in some circumstances.
It is essential to note that making a higher deposit can give the buyer a competitive edge in a multiple offer situation. It can also increase the buyer`s chances of getting their offer accepted, especially if the seller is looking for a serious buyer.
What happens if the sale falls through?
If the sale falls through due to unforeseen circumstances, the buyer may be entitled to get their deposit back. However, if the buyer backs out of the sale without a valid reason, the seller may be entitled to keep the deposit.
It is crucial to have a clear understanding of the terms and conditions of the sales contract before making a deposit to avoid any confusion or disputes.
Conclusion
A home buying contract deposit is a crucial part of the home buying process. It shows the seller that the buyer is committed to purchasing the property and protects the seller against any potential losses. It is essential to understand the amount required, the terms and conditions of the sales contract, and what happens if the sale falls through before making a deposit. By doing so, the buyer can make a confident and informed decision when making a deposit.