We've had some crazy weather running across the country the past few weeks--I'm not sure if I'm supposed to be hot or cold any more! I do feel like I need to keep multiple layers with me at all times, though!
I work often with first time home buyers, and it's alway interesting how we (those of us that have been through the process many times) take for granted the "little things." This past week I had one who was concerned about what and EMD is, how it works and does this mean I have to pay MORE for the house I'm buying?
First off, and EMD is short for Earnest Money Deposit, and this is a check you write when you put in an offer on a house. This money goes towards the purchase price of the house OR the closing costs. It is not in addition to the agreed upon price.
Why is an EMD required? This is a good-faith payment to the seller saying you are seriously interested in this home, however, if you get cold feet because you suddenly do not like the house, this is money you could lose. If you are getting a loan, though, and are concerned that you "might not get" the loan, there is a contingency clause regarding financing. This means that if you don't get approved for the loan to buy the home, you can get your EMD back.
How much is an EMD? It depends on your area specifically. It is usually at least one percent of the offer price, or some areas will have a minimum of $1000 regardless. Either way, this is still "your" money and goes towards the purchase price/closing costs.
Does the seller get my EMD as soon as I pay it? It can, however, not customarily. In Florida, you will make a check out to either the real estate brokerage listing the home, or a title company that will be holding the money in escrow until the closing on the home. The amount you paid will be a part of whatever your costs are at closing. If, for some reason, there is excess money left over at closing, then you can get that back at closing, depending on your lender.
I've seen a few buyers that are concerned about an EMD, thinking they are paying more, or it's money they will never see again, but you have to look at it like this--it's a large investment--buying your first home--you need to put forth a good faith deposit and let the seller know you're serious about buying their home.
If you have questions or are concerned about how the EMD works, talk with your lender or your realtor--or feel free to ask questions here!