After you have found the house of your dreams, be prepared, you are about to right what could be the largest check of your life. This check is typically referred to as a down payment towards the purchase of your home because it is the first money that is put “down” towards the purchase price. While this amount may be the first money you apply to the purchase it may not be the last; you may be required to put more money down later as the buying process proceeds.
The first check that any buyer applies towards the purchase of a home typically accompanies the contract and is referred to as earnest money. This money shows the seller that you are serious about purchasing their home and that you stand behind your offer. After this money leaves your hands it is deposited into a special account that was created to hold the escrow money. It is common that this escrow account is handled by the seller’s attorney.
Many prospective buyers are concerned about what happens to the funds if something should go wrong with the deal. This is often determined by what was included in the terms of your contract. It is common for the buyer to receive their money back if the seller backs out of the deal or if you have included a financing contingency clause in your contract. You can also get your money back if you and your realtor have included an inspection contingency in your contract; this clause comes into play if during the inspection process you are informed of problems that weren’t disclosed prior to the contract being signed. The most common reason why a buyer would not receive their earnest money back is if the buyer backs out of the deal.
This is enforced in order to protect sellers from buyers who continually change their minds before the deal is final. If you have any doubts about the specifics included in your contract ask your realtor for a detailed explanation of every clause that has been included. It is important that both the seller and buyer are protected, which is why special attention should be paid to all aspects of a contract. If you are still unsure of the penalties you may face should you need to cancel a contract you may want to consult with a real estate attorney who will be able to thoroughly explain the contract and all of its contents to you.