The major differences between earnest money and down payments.
What’s the difference between an earnest money (or binder) deposit and a down payment? Many people assume the two are the same, but that is not true.
Essentially, earnest money is the deposit a buyer has to make to prove to the seller they are serious about purchasing the home. These are slightly high right now because we’re in a competitive market, and buyers use them to make their offers stand out. This deposit can be anywhere from 1% to 4% of the sale of the house. For example, if you want to purchase a home listed at $400,000, you’ll have to pay a $4,000 earnest money deposit when the contract has been accepted. One big thing to note is you can end up forfeiting the money if you do something that is against your contract, like walking away during the inspection period.
“People assume earnest money and a down payment are the same, but they're not.”
On the other hand, a down payment is what you pay when you close the transaction. If you have both, your earnest money deposit is applied to your down payment when you close.
The two payments may have some similarities, but they are not the same. If you need more clarification on this topic, call or email me. I’m happy to be your real estate resource!