There can be two types of deposits in a real estate transaction. There is the earnest money deposit, and if the buyer needs financing to purchase the property, they could be required to make a down payment, depending on the loan type, which can also be called a deposit. Though they are both deposits, they are for two different purposes and will not necessarily be or need to be the same amount.
The purpose of the earnest money deposit is to bind the agreement. It is held in escrow by the listing agency or sellers attorney as security for the seller and is required as part of the contract between the buyer and seller. Because we typically have a two-part contact in our area, the buyer will make an initial deposit with the offer and a second deposit with the P&S (Purchase and Sales agreement).
For example, in a contract with a purchase price of $250,000, the first deposit could be $1,000 with the offer. It is common to see the second deposit be the balance of 5% of the purchase price, if possible, in this case, $11,500.
Earnest money deposits can vary depending on the amount the buyer is willing and able to put up as security to fulfill the agreement and what the seller is willing to accept. The seller must feel comfortable that the deposit is substantial enough to secure the transaction as it is typically the only recourse they have if the buyer defaults.
The deposit will be used as part of the buyer's down payment and closing costs at closing as long as the buyer does not default in the contract.
The down payment or deposit to the lender is different. It represents the amount the buyer/borrower will be paying towards their loan to purchase the home. Not to be confused with the earnest money deposit.
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