Sellers like to have some guarantee buyers bidding on their homes will actually follow through on the sales. It's not unusual, therefore, to find you are required to put up earnest money when you agree to buy a home. Usually 1 to 3 percent of the purchase price, this deposit is typically applied to your down payment once the sale goes through. However, you can easily lose this money if you're not careful. Here are two mistakes you want to avoid if you want to ensure you'll get your money back if things go awry.
Waiving the Wrong Contingencies
One reason why buyers lose their earnest money is they choose to waive contingencies that end up hurting them in the end. Contingencies are conditions that must be met before the home sale can go through. Buyers in a seller's market will often waive some of these contingencies to make their offers more attractive to sellers.
However, it's important you think carefully about which contingencies you waive. In particular, you may want to keep financing-related clauses intact. While you may believe your loan is in the bank (so to speak), anything can happen that may lead the lender to decline to finance your home. For instance, if your credit takes a downturn during the home buying process, the bank may rescind any preapproval offer it previously provided to you. You may be forced to cancel the sale and—because you waived the financing contingency—you'll lose your earnest deposit as a result.
Be sure to discuss the contingencies you want to waive with your real estate agent or attorney first to ensure you thoroughly understand the pros and cons of going this route.
Missing Important Deadlines
To ensure closing takes places within a reasonable amount of time, the bid contract will typically outline when certain things must be done. For instance, you must have the home inspected and secure financing by a certain date. If you miss these deadlines, the seller can cancel the transaction and take you earnest money as a penalty.
Most sellers are pretty reasonable and will give you more time to get things done if you ask, as long as it doesn't interfere with their plans. However, some sellers are not keen on waiting and may include a clause requiring the sale close by a certain date and rendering the transaction forfeit if you don't meet that deadline. It's essential you thoroughly read your contract and watch for this language to avoid being taken by surprise if things don't go according to plan.
For more information about this issue or help finding a home, contact a real estate agent.