Down payments and deposit money is a big part of every contract. As a buyer you have actually have options when it comes to your down payment putting deposits down.
Your down payment is made up of the deposit money you put down soon after signing the contract and your final payment that you bring to closing. Your mortgage will have a minimum amount that you need to put as a down payment and then if you would like to put more down you can.
The contract actually allows you to schedule deposits toward your down payment at different times. It allows for an initial deposit, a second deposit and then the final amount that you bring to closing with you.
The first step is to determine how much you need / want to put for a TOTAL down payment and then work out your other deposits from there. Currently FHA loans for a single family home let you put down only 3.5% as the minimum and you can get a conventional loan with a minimum of 5% down. Condos and town homes, multi-family homes, investment properties and second homes may have different requirements for the down payment. Your mortgage rep is the best source to see which loan is best for you and what the downpayment requirements are.
Once you know the total amount you are putting as a down payment then you can figure out how to split up the deposits.
You Are Not Required To Put A Deposit Down When You Sign The Contract
One of the biggest misconceptions in real estate is that you have to put down a deposit at the time you make your offer. This used to be very common, but since electronic signatures have become more prevalent many offers do not contain a deposit with the contract because there is no way for you to give a physical check to your agent if you are signing it from your computer at home.
What we do now is schedule the deposit. When you sign your contract we’ll schedule your first deposit (which may also be called earnest money ) for about 10 days after you sign the contract. Then you’ll need to deliver a check to your attorney or the seller’s attorney by that date. The deposits are all held in an escrow account by an attorney and they won’t be released to the seller until you actually purchase the property. So if something falls through with the purchase you can typically get all your deposit money back.
You have the option to put down a second deposit. It isn’t required and I usually find that this second deposit is more a matter of preference. Some people just want to get all their deposit money out of the way up front so they schedule it in 1 payment. Other people prefer to make 2 smaller payments.
Regardless of how you schedule these payments there are two important things to remember:
- Your closing costs are not included in the down payment. You will need an estimate from a lender as to how much they will be and plan on bringing them in addition to your down payment or you will need to ask for a seller’s concession.
- The amount of money you put down affects the strength of your offer. For example if 2 people offer the same amount of money for a house and 1 person puts 3.5% down and another puts 20% down, the 20% down would be considered a stronger offer.