https://www.youtube.com/watch?v=abvZnfNcje4

Okay, we're clapping, we're waking you guys up, we're gonna do a little bit of home buyer 101. What is EMD, also known as an earnest money deposit? This is something that people are constantly caught off guard by. So today we're going to talk about what it is and what some of the misconceptions are and how it works.

So first of all, what is an earnest money deposit? It's basically a sign of good faith. So let's say that I want to buy Bob's house, and Bob's going to sell his house for five hundred thousand dollars. My real estate agent's gonna say, 'Hey Jen, you know how much do you want to put down as EMD?' Or they're gonna say, 'Jen, I need three percent for EMD, or one percent, or two percent.'

That's the first thing you guys need to know: there is no legal requirement for how much earnest money deposit you need to do. There's no requirement, guys, and sometimes an agent will say, 'Well, you have to do three percent.' No, you don't. You don't. It varies. Like, I've seen people with earnest money deposits of five hundred dollars on a half a million dollar house. It depends on what you can afford and the loan type that you're doing.

Now, it's a sign of good faith. So, do you write the check to the seller? No. Do you write the check to the real estate agent? No. Is it something that you should give someone in cash? Absolutely not. If anyone is asking you for cash at any time you're buying a house, I want you to call me immediately because there's a 99 percent chance they are trying to commit fraud. So, no, it's not cash. In states that have escrow companies, you basically write the check out to the escrow companies. So let's say you're in California and it's First American. I would write a check to First American for that 15K.

Now, what happens with that money is the Escrow Company holds onto it, and as long as I don't break my terms of the contract, then that money will go towards my down payment or my closing costs. Okay, so the seller doesn't get to keep that money. It's not just a gimme. It's not a freebie. But if, like, for instance, let's say that I got to the day before closing, I already released my appraisal contingency, my loan contingency, I'm about to sign, and I say, 'I don't want the house, I don't want it, forget it.' Now, in that case, depending on the state you're in, the seller can keep your earnest money deposit. In fairness, they would deserve it if you take a seller all the way to the finish line and then cancel because you just don't want to buy the house. Like, you've put this person out, this person has packed, this person has gone through the psychological aspect of moving, they may have been contract on another house, there's a lot of things going on.

But the key for you guys to know is you need to talk to your real estate agent when you're initially filling out the purchase contract so that you understand under what terms you could lose that earnest money deposit. It's not something most agents go over. You know, a lot of times agents just send you guys contracts, they explain nothing, and they tell you to sign. So, if you're putting money on the line, which you are with an earnest money deposit, and it is normal, you know, you need to understand under what circumstances you could lose that money.

But as long as you don't hit those circumstances, then that money ultimately goes towards your closing costs or down payment. Okay, next part.

So sometimes I'll have buyers where they're like, 'Jen, the seller wants five thousand dollars earnest money. I don't have five thousand dollars.' Okay, so I'll say this with my lower down payment, you know, lower down payment if we're getting the seller to pay closing costs and that's okay. Like, I don't ever want you guys to feel ashamed or embarrassed, you know what always gets me angry is if I'm talking to a real estate agent and they're like, 'Oh, well, they said they have to save more.' And I called the buyer and I'm like, 'Dude, I've got you approved, we just have to do this, what's the problem?' And they go, 'Well, I don't have the ten thousand they want for the EMD.'

And I'm like, 'You don't have to do ten thousand dollars.' You know, but a lot of times a real estate agent will say, 'I need this amount of money,' and you guys don't realize that you can go, 'Hey, I don't have that, can we do this?' You know, and if they say no, have them call your lender. Right, like if I'm your lender, I'm going to be talking, and this doesn't happen often, most real estate agents are wonderful human beings, okay, so they're gonna get it, they may just, they're not math, right, they're not math people, they're not numbers people, there's some that are, but most, most of the time they don't think about it. It's just like, 'Oh, like, my last deal did three percent, you do three percent,' or usually, we do one percent or, you know, whatever it is. But it's important that you guys know there's no set requirement. Now, should you have some level of earnest money? Yeah, I mean, look, there should be something, ideally.

Right now, are there cases where people have no earnest money? Yeah, there are, there are. You've got to find a seller that's comfortable with it, but it does happen. If, for instance, I'm doing a VA loan, which is zero down and we're getting the seller to pay the closing costs, it's very likely that buyer may not have earnest money, and that's okay. But, for instance, if you're doing 20 percent down, they're going to expect some level of earnest money. So, let's just say, let's go back to that 500,000 example and do 20 percent, which is a hundred thousand dollars. Okay, that's my down payment. Now, would I put all my down payment up front with escrow? No, no, no, no, no. What I would do, though, is if the agent said, 'Hey, we need five thousand dollars for earnest money,' I would say, 'Okay, cool. So, I'm gonna give five thousand dollars to Escrow to hold on, and then ultimately that five thousand dollars will go towards my 100K down payment.'

Okay, so you're not losing money because that's the thing people are like, 'Oh my gosh, how am I going to afford a down payment and closing costs and EMD?' No, okay, the earnest money deposit is a sign of good faith. It lets the seller know, 'Hey, to be blunt, if I screw you over, you will get some money.' That is what it's for. Now, look, you may be like, 'Oh my God, so if I get in contract and I don't buy the house, they're going to take my money.' Not necessarily, like, look, it depends on how your contract's written. So, like, for instance, if you do inspections and you have an inspection contingency and you find out the house has a terrible foundation, there's ways you can cancel your contract and get that money back.

But this is your real estate agent's job, and I don't want to go into that because I am not a licensed real estate agent, but it's something that you want to talk about because in most states, it is them drawing up the contracts. Now, of course, there's exceptions to this. New York, the attorney draws up the contract, so you want to talk to them.

But the key in all of this is earnest money deposit is a normal thing. There is no set requirement of how much you need to give. It is a sign of good faith, that is it. So don't let someone saying you need a big EMD stop you from buying a house. Just call me and we'll talk about it because a lot of times people don't realize, like, 'Oh wait, I really don't need that much as an EMD.' It's going to depend on what the seller and the listing agent are comfortable with, as well as do they need to sell that house, right? If they have 10 offers, okay, they may want the biggest EMD, they may want the highest offer, who knows? If it's been on the market for 14 days, I don't think it's going to matter if you do 5000 EMD or 1,000, they probably want to sell the house, right? So, you want to think about that too.

But overall, I wanted to do this video because I know it's something no one talks about because it's kind of boring, right? Like, who wants to do a whole video on earnest money deposit? We did it. I hope you guys stayed awake. I dialed up the energy by, you know, pounding espresso. As always, I am licensed in 48 states to do mortgages. I love getting you guys home. You know this, call me, get on the calendar, reach out, text, send, it's, don't send a smoke signal, I'm in California, that's scary, send a pigeon, whatever. We are here to help you. We'd love to help you get home.