I have met many first time home buyers who are prepared to make a down payment, and are ready for some of the closing cost.  They have a plan in place to have the money they need by the day of closing.  However, they simply from lack of experience, by no fault of their own are unaware they will need to have some money available within a few days of having their offer on a home accepted.  They money you will need as a buyer is the Earnest Money Deposit, sometimes called an Escrow Check, or Good Faith Deposit.

SO WHAT IS THE EARNEST MONEY DEPOSIT?

The earnest money deposit is an amount of money you, as the buyer, are prepared to place in a non-interest bearing account, that is typically held by the office of the property's listing agent.  It is seen as a good faith deposit to back the offer on the home you are seeking to purchase.  When your offer is accepted you have (5) five calendar days to have the check to the listing agent.  This money will be held in the escrow account until closing. At closing the money is then applied as a credit toward your closing costs.

HOW MUCH EARNEST MONEY SHOULD I GIVE?

There is no set amount required.  However, as a general rule of thumb, never offer less than 1% of the sales price.

If the home's sale price is $200,000 then your Earnest Money Deposit should be at least $2,000.

Like anything else in real estate, earnest money is always negotiable.  In the current seller's market, where multiple buyers are bidding on the same home, it can  strengthen your offer to increase the amount in the earnest money deposit.  If all other terms to a competing offer are the same or close this may push you over the top.

CAN I GET THE MONEY BACK IF THE SALE FALLS THROUGH?

This is a little bit more of a complicated answer, but the short answer is, in most cases, yes, you can get it back.  The way the Pennsylvania Agreement of Sale is written certainly makes it easier for the buyer(s) to get the deposit back as opposed to the seller(s) being allowed to keep it.  The seller may be entitled to keep it under certain circumstances.

• Buyer providing fraudulent information on the mortgage application.  (This one is pretty straight forward.)
• Failure to respond to a buyer requirement/responsibility listed in the contract by the deadline date.
• Buyer backing out for a reason not specified in the contract. (Ex. Day of settlement arrives and you simply decide I don't want the house anymore.)

That is a quick overview of the earnest money deposit.  It is important that buyers are prepared to write this check within a few days of your offer being accepted, and remember the more you put down the better chance that a seller accepts your offer.