Here are two terms buyers should understand when making a home purchase: “down payment” and “earnest money deposit.” They both involve money, but represent two different aspects of a home purchase.
For simplicity, let’s say a home is priced at $750,000. By financing 80%, the down payment would be $150,000, payable at closing. When making such an offer, it is assumed that the buyer has funds on hand for at least the down payment.
The “earnest money deposit” is a different story. Earnest money is paid at the time a purchase contract is signed and is negotiable. The terms under which the buyer’s earnest money can be forfeited are specific to each individual contract.
If $150,000 is on hand for a down payment, the buyer could reinforce the purchase offer with a $15,000 deposit. Buyers who offer only $5,000 or $10,000 are unknowingly broadcasting a message that perhaps they are not totally committed to complete the transaction.
When buying your next home, let sellers know you mean business. The larger your earnest money deposit, the more credible your offer becomes to the property owners.