After you
have come up with an offer price, the next step is to determine how large
a deposit you want to make with your offer. You want the "earnest money
deposit" to be large enough to show the seller you are serious, but not so
large you are placing significant funds at risk.
One
recommendation is to make sure your deposit is less than two to three
percent (depending on your location) of your offered price. The reason for
this is that if your deposit is larger than that, the lender will pay
particular attention to how you came up with the funds. You might have to
provide a copy of a canceled check along with a bank statement showing you
had the money to begin with. Normally, this is not a problem, but if you
have a short escrow period or are barely coming up with your down payment,
it could pose an inconvenience. We can help you with your home search.
Another
reason to limit your deposit is "just in case." Although significant
problems are the exception and not the rule, they do occur. "Just in case"
there is a nasty or prolonged dispute between you and the seller, the less
money you have tied up in a deposit, the fewer funds you have placed at
risk.
As with
practically everything in real estate, there are exceptions to this rule,
too. During a hot market there may be multiple offers on the property that
interests you. A large deposit may impress a seller enough so they will
accept your offer instead of someone else’s, even when your unknown
competitor is offering the same price or slightly higher.
Since large
deposits do impress sellers, you may also find that by making a large
deposit you can convince the seller to accept a lower offer. More money up
front may save you money later. We can help you with your home search.
There are
also times when closing can be delayed by weeks, through no fault of your
own. Have back-up plans prepared for such a contingency.
