Here's What You Need to Know About Earnest Money

If you’re a first-time home buyer in Houston, you’re probably getting a crash course in real estate lingo. From house hunting to closing, you may come across a lot of unfamiliar terms such as earnest money and option period and fees.

Home buyers are often confused by what they are—and if they’re required—so here’s what you need to know.

What Is an Earnest Money Deposit?

After you’ve found the home of your dreams, it’s time to get down to business and make an offer. Including an earnest money deposit will give the seller some peace of mind when pulling it off the market.

Although earnest money is not required to turn an offer into a contract, you’ll find that most home sellers—especially in a seller’s market—won’t entertain an offer without a check. Your Houston Realtor® will walk you through the deposit process.

How Much Earnest Money Do You Need?

The amount of money you should put down varies by region and home seller. Often, a seller will determine a percentage of the home’s purchase price, or a flat fee.

This money will be held in escrow until you close on your home or there is a default in the contract. Typically, this is used to compensate the seller in the event you don’t complete the purchase of the home. If there are no issues—you’ll be credited at closing.

What Is an Option Period and Fee?

Texas offers an option period and fee to home buyers as a form of protection, and it’s included in most real estate transactions.

Separate from the earnest money deposit, this allows buyers a specific amount of time to arrange for inspections, as well as back out of the home purchase—with no questions asked—and receive their deposit back.  

How Much Is an Option Fee?

The amount of money you’ll pay for the option fee varies. Typically, it is set as a small percentage of the home’s purchase price—and is usually no more than a few hundred dollars.

Unlike the earnest money deposit—the option fee is non-refundable—and the money goes directly to the seller.

Are You Buying a Home in Houston or the Surrounding Areas?

If you’re thinking of buying a home in Houston, Spring, or Jersey Village, I’d love to help! Call me at 713.818.7765 or contact me online so I can start searching right away.

You can view my Houston area properties for sale here:

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Post Category: Home Buying, General, Education

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