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TO PURCHASE REAL ESTATE - THE BASICS
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.
is to make sure your deposit is less than two percent 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.
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.
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.
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.