What is an Earnest Money Deposit?

An earnest money deposit is a check or a wire transfer that you put in with your real estate offer to let the seller of the home you're looking to buy know that your offer is serious. 

It's a check or sometimes a wire that is sent to the title company, not your lender, but through the title company in the transaction.

The title company holds on to those funds throughout the transaction, and on the day of closing, it's released to the buyer.

It might help to think of an Earnest Money Deposit sort of like a "down payment on your down payment and closing costs." 

The earnest money is subject to the terms of your real estate transaction. 

Every real estate contract is unique; however here in the state of Florida, the standard Florida Bar Contract (sometimes referred to as the "FARBAR" Contract) basically makes the provision that if both parties uphold the terms of the real estate contract, then the money will be there for the buyer at the closing, as intended.  

Some of the common questions about earnest money are: 

Is the earnest money deposit ever at risk?  Can I lose my deposit money?

Here are some helpful rules of thumb: 

• If the SELLER violates the terms of the contract and the contract is terminated, then the buyer can request that the title company release their earnest money funds back to them so that they can move on to buy another home.
• If the BUYER violates the terms of the contract and the contract is terminated, then the seller could go back to the title company and ask that the earnest money deposit be refunded to them.

Again, if both parties honor the agreement, those funds are kept safely with the title company and are available to the buyer on the day of closing to use for their down payment and closing costs. 

Documenting the Earnest Money Deposit for the Lender

If you're applying for a home loan, your lender is going to require documentation of these funds.  Federal law requires that lenders track all of the buyers' funds in a real estate transaction.  This is done for several reasons, but two of the biggest reasons are to A) make sure that there are no unknown borrowers in the transaction, and B) to prevent money laundering.  

Typically, most lenders will require the back/front copy of the earnest money check after it's cleared your bank account, along with a bank statements showing the funds being withdrawn from the borrower's account balance.

So be sure to ask your loan originator or loan processor for any specific details.

Wrapping Up...

As always, if you’re looking to purchase, refinance or get preapproved to purchase a home anywhere in the state of Florida, we’d love to help.  Simply give us a call so we run some numbers for you and answer all your questions! 

You can also drop us a line HERE »

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS#365627
Unconventional Lending Program Director

​About the Author: 

Derek Bissen is a licensed Mortgage Loan Originator with over 25 years of experience in the industry. Derek is a self-employed lending expert who is known for his ability to work with borrowers who have substantial wealth and non-traditional lending needs. He is a creative loan structurer and specializes in portfolio lending, asset-based lending, bank statement lending, as well as traditional loans such as Conventional, FHA, VA, and first-time homebuyers.

Derek's expertise in the mortgage industry is unparalleled. He is a trusted advisor to his clients, providing them with customized loan solutions that meet their unique financial goals and needs. His vast experience and knowledge make him a valuable asset to anyone looking to purchase a home or refinance their existing mortgage.

As a highly-experienced loan originator and author, Derek is committed to sharing his knowledge with others. He regularly provides valuable insights and advice to readers looking to navigate the complex world of mortgage lending. His articles are informative, engaging, and backed by years of hands-on experience.

With his wealth of knowledge and dedication to his clients, he is the go-to source for all your mortgage lending needs. If you're looking for a reliable and trustworthy mortgage expert, contact Derek today to learn more about how he can help you achieve your financial goals.