Deposit, Closing Costs, Earnest Money
The deposit is different from the down-payment. The deposit, sometimes called “earnest money”, is the amount that the buyer puts down as an assurance that they want to go through with the process of buying the home. In Maryland, there is no contract without a deposit, no matter what the amount. When a buyer writes the offer, the amount of the deposit is always negotiable. Usually, the higher the price of the home, the higher the expected deposit. As for the down-payment, sometimes a portion of the deposit may be applied to the down-payment, but it isn’t the same thing. How much will a buyer needs for a down-payment?… it depends.
The deposit check is deposited by the buyer’s brokerage, or title company, then used to cover certain costs at settlement. Sometimes the buyer can pay some of the closing costs, sometimes the seller pays some or all of the closing costs. This is all negotiated in the offer.
How Much Will I Need for A Down-Payment?
Many first-time buyers are under the false impression that they must have 20% down on a home. There are plenty of loan programs that don’t require that much.
For an FHA loan, the minimum deposit is 3.5% of the price of the home. Many first-time buyers use FHA loans because they generally have the lowest minimum deposit. Conventional loans can have from 5% to 20%, depending on the product. VA loans are the only loan product that requires no down payment from the buyer, a great product for servicemen and women in appreciation for their service to our country.
Aside from the minimum requirements, the amount of the deposit is negotiable. If the seller agrees to pay for closing costs, the amount the buyer needs to bring to the table can be minimal. If there are competitive offers on a house, the buyer can “sweeten the pot” with a higher deposit. This can signal to the seller that the buyer is, indeed, serious.
If the initial deposit doesn’t cover all the expenses that the buyer needs to pay, the remainder can be paid at settlement. Moneys can be wired or paid with a cashier check.
Closing costs are fees and charges associated with the processing of the transaction. Closing costs generally come to about 3-4% of the price of the home. Your lender will give you an estimate of these costs when you apply for the mortgage.
Good Faith Estimate
Lenders are required by law to provide a “Closing Disclosure” of your closing costs within 3 days of your loan application. It must include an itemized list of all the fees associated with the loan. The CD is only an estimate, but the final fees must not be more than 10% of the original estimate. Once the CD is issued, the lender may not change the fees, so they are very motivated to be as accurate as possible.