Most home buyers believe that if they can obtain a mortgage, they will be able to comfortably buy any home they want. However they don’t realize that there are many upfront costs associated with buying a home. Our Buyer Investor Program that helps credit challenged people buy a home with owner financing requires them to arrange for a minimum of 15% down payment and closing costs. So when you are in the market looking for a home, you should factor in these expenses also. One of the upfront expenses includes earnest money deposit. Let’s discuss what earnest money deposit is and how it works in owner financing:

What is earnest money deposit?

When a seller puts a property on the block, he or she may receive multiple offers from prospective buyers. After reviewing the offers, the seller will accept one of them and ask the buyer to pay an earnest money deposit. It is a good faith amount that shows you are a committed buyer and will abide by all the terms and conditions outlined in the sales agreement. Now the question is: how much earnest money deposit will you pay to the seller?

Well, it varies from deal to deal. When you are taking out a mortgage from a conventional lender, it could be up to 2 percent of the purchase price. Earnest money deposit is held in escrow and then goes towards funding your down payment and closing costs.

In a regular deal, you will need to put at least 20% down to avoid paying private mortgage insurance (PMI) in addition to your monthly principal and interest payments on a mortgage. The closing costs will amount to about 4% of the purchase price. So if you add up all these costs, you will have to arrange for nearly 26% of the purchase price including down payment, closing costs and earnest money as soon as you have zeroed in on a home.

Under our Buyer Investor Match program, an investor from our network owner finances a home to a credit-challenged buyer. It means that the buyer borrows from the investor, instead of a conventional lender in this arrangement. Our minimum down payment requirement is 15%. We help you find a home of your choice and as soon as you decide to buy a particular property, a wholesaler from our network makes an offer to the seller. At this time, you need to make an earnest money deposit of about 10% of the purchase price. Once you make the earnest money deposit, an investor will buy the property and resell it to you usually on the same day.

The earnest money deposit will be held in the escrow and go towards funding your down payment. The remainder of the down payment is made by the buyer at closing. The closing costs are about 4% (vary from deal to deal) – almost the same as what you pay when taking out a conventional mortgage.

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