One of the most common questions I get asked by first-time home buyers is when they have to show/produce/pay the down payment for their purchase.
First and foremost, let’s clarify a couple of terms: earnest money deposit and down payment.
There’s a big difference between the earnest money deposit—the cash you provide along with your offer—and your down payment, which is the amount your lender requires you to put toward the purchase of the property. The deposit tells the seller you’re a committed buyer, and it helps fund your down payment. The biggest difference between these two types of payments is that the earnest money deposit is relevant to the home seller and the down payment is relevant to your lender.
Basically, the earnest money is due typically within 48 hours of the sellers accepting your contract, and it is there to show you’re serious about your offer. If you walk away without completing the transaction, with certain exceptions, you will lose the earnest money (aka deposit) to the sellers.
The down payment, on the other hand, is what your lender requires you to have in order to qualify for a loan. That amount can vary, depending on what program you qualify for, but typical amounts range from 0% to 20%. That amount is due at closing. Although the amount is only due at closing, you are typically required to show that you have the money before the loan is given final approval.
The earnest money is considered part of your down payment, so whatever the down payment is (that you’ve worked out with your lender), deduct the earnest money from your down payment and that is the remainder of the down payment that is due at closing.
For example, if you were going to put down $30,000 as down payment on a $300,000 home and you had written a check for $5,000 for the earnest money within 48 hours of your offer being accepted, then the remainder of the down payment due at closing is $30,000 minus $5,000 equals $25,000.
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