Earnest money is often a personal check from you, the buyer, for perhaps 1% of the purchase price, that you make out to a title company and that you give to me, your real estate agent , to hold before we submit your offer to the seller. If your offer is accepted by the seller, I’ll deliver your earnest money check along with the accepted offer (now a “contract” or “agreement”) to the title company to “open escrow” and the title company will deposit your earnest money check into your new escrow account.
Down payment is the amount of unborrowed money, the “cash” so to speak, that you will put into the escrow account to buy the home. For example, if you are getting a loan for 80% of the price of the home, then your down payment will be 20%.
Earnest Money Usually Applied to Down Payment at COE
Buyers usually want that at close of escrow their earnest money goes toward their down payment. In the example above where your 1% earnest money was put into your escrow account, that means before you can close escrow and take title to the home, you’ll have to put an additional 19% into your escrow account.
Typically, you would ask your personal bank to wire the 19% from your savings account directly into the escrow account. You’ll then have the total 20% down payment in the escrow account.
Your lender, of course, will have to wire the money you borrowed, the 80%, into the escrow account as well before you can close escrow and take title to the home.
Other Closing Costs
In addition, before the close of escrow, you will have to put into the escrow account money to cover the rest of your closing costs like the fees to pay your lender, the cost of the title insurance policy your lender will require you to buy, escrow fees and other smaller miscellaneous fees. In the example above, this money would be wired from your savings account into the escrow account at the same time as the 19%.
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