Are you shopping for a house? Be prepared to make a serious money deposit
If you want a seller to take you seriously, have the cash available to cover that cost.
When making an offer to purchase a home, you will almost certainly need to include a serious deposit of money as part of your proposed purchase agreement.
A serious money deposit is money you deposit with an escrow agent (a trusted third party, such as a lawyer or securities firm). It’s usually around 1% to 3% of the purchase price, although the amount may differ – and larger deposits can make your offer more attractive to sellers.
This is important because a deposit shows that you are serious about the purchase, and home sellers will usually decline your offer if you don’t promise to make a deposit.
This can mean that you need several thousand dollars to hand if you don’t want your home buying efforts to go off the rails.
Get $ 150 off closing costs with Better Mortgage
This is one of the best lenders that we have personally used to achieve big savings. No commissions, no set-up costs, low rates. Get a loan estimate instantly and $ 150 off closing costs.
Why you need to make a serious money deposit
When you make an offer to buy your home, the exchange of funds and transfer of ownership will not happen for several weeks, if not months. Indeed, the sale of a home is a complicated transaction that usually involves an inspection, an appraisal and a bank review to approve the financing.
Once they have accepted your offer, sellers must list their home as “on hold”. This means that most other potential buyers will not be interested in looking at the property. Sellers won’t want to put their home on hold unless you show you’re serious about the purchase. And this is where your serious money deposit comes in.
When you make your deposit, you demonstrate that you are committed to purchasing the property under the terms of the contract. You will usually make your offer contingent (conditioned on) certain things that occur, such as a satisfactory home inspection. If these conditions are met and you decide not to complete the sale, you will lose your security deposit. This protects sellers and gives them the confidence to list homes as on hold while other necessary steps to purchase are completed.
As long as you make the sale, your down payment will simply be applied to your down payment or other purchase costs at closing. If you renounce a home purchase contract for a valid reason, such as major problems during the inspection that lead to the contract being canceled, you will get your security deposit back.
While there’s clearly a good reason sellers require this deposit, the problem is, it can cost a lot of money if you’re not prepared for it. This is especially true if you make a small down payment and get a mortgage to cover most or all of the cost of the house. You won’t get your mortgage closed until you’ve accepted an offer and completed all of the pre-purchase steps. But you might not be able to start this process without some serious money deposit.
To make sure your dreams of home ownership aren’t derailed by not having those funds, it’s a good idea to start saving as soon as possible for the money you’ll need to deposit. That way, you’ll be ready to make an offer that has a much better chance of being accepted when you find your dream home.