Guidelines For Earnest Money and Down Payments, Part 2 of 2

Hi Folks,

   Welcome back here on this last day of the week.

   In part 1 of this 2-part series, we defined and discussed "Earnest Money", and today, we will do the same thing with "Down Payments".

   A Down Payment, as most of you know, is an amount that is "put down" towards the total purchase price of a home. This amount can vary by state, type of loan program, and the type of deal. We'll look at some real-word examples of this today.

   Joetta Talford, a Realtor with Keller Williams Realty in Fort Mill, South Carolina, suggests that you, "Make sure you figure out how much your closing costs will be and if you either have enough for your closing costs or the down payment.", and that, "If you don't have enough for both (i.e. Other house on the market, ask for help with closing costs), Be honest with your agent and they can really try to get it worked out on your behalf." Adam Cowgill, A Sales Associate/Realtor, says that any down payment today, "should be a minimum of 20%; sellers are aware of the present lending crunch and the likelihood that you will get a higher LTV than 80% is gone like the boom of yesterday."

   Jeff Tufford, a Mortgage Consultant, says that down payment amounts will be, "program driven". Most folks put the least amount down allowed, whether that is $0 or 20% for an investment property."

   Down-payments depend on, "whether the deal is lender-financed, or seller-financed", says Patrick E. Hudson, a Commercial Real Estate Attorney in Texas.

   Hudson says that in a lender-financed deal, "the buyer needs just enough of a down payment to persuade the lender to make the kind of loan the buyer desires. My advice is for a buyer is to determine what kind of loan they want, and will be able to get, before they shop for homes, and let that determine the down payment amount. The seller should not care about the down payment amount, as they get paid the same regardless of the source of funds." In a seller-financed deal, "it is essential to get enough money up front to (a) weed out deadbeats; (b) cover the costs of foreclosure; and (c) cover damages that may be caused by a defaulting buyer. This defensive position ensures that if everything goes wrong, the seller has enough money to get the house back and restore it to a good condition."

   In terms of down payment amounts in regards to home home builders, Talford says, "There are certain national residential builders that ask for 3.5% down or more before they begin the process of construction.", and that, "A custom home builder will ask for 10% down before they build. But everything in real estate is negotiable, especially if you have a home to sell or need to pay more for closing costs."

Have a Great Day, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

Guidelines For Earnest Money and Down Payments, Part 1 of 2

Hi Folks,

   Happy Monday to you, and a Happy President's Day, as well !

   We are starting a 2-part series covering some basic guidelines on both Earnest Money for Real Estate Deals, as well as Down Payment Money for purchasing a home. For today's installment, we will be examining Earnest Money, what it is, and what the right amount should be based upon.

   As Earnest Money is described on About.com, "It's a good faith deposit but not to be confused with a down payment. When buyers execute a purchase contract, the contract specifies how much money the buyer is initially putting up to secure the contract, to show "good faith," and how much money all together will be deposited as a down payment. The balance is generally financed as a mortgage or a combination of mortgages. An earnest money deposit says to the seller: "Yes, I am serious enough about buying your house that I'm willing to put my money where my mouth is."

   "After 12 years in the Real Estate industry my advice in this economy is this", says Adam Cowgill, A Sales Associate/Realtor; "you should still offer a deposit that is the maximum amount of money you are able to offer in exchange for asking the seller to remove their home from the market while you satisfy your contingencies". Marc Bulandr of Foreclosure and Short Sale Experts Reoassets, Inc., says that, if a buyer wishes to purchase a property, "the more the earnest money, the more favorable the offer will be viewed by the seller."

   Jeff Tufford, a Mortgage Consultant, says that Earnest Money should be, "market driven", and that in his market in Mid-Michigan, "the going amount is typically $500-1000", and the average home price, he says, is $75,000 to $100,000. Joetta Talford, a Realtor with Keller Williams Realty in Fort Mill, South Carolina, agrees that the amount of Earnest Money, depends on the market and the demand for the property". Talford says that typically, "most buyers purchasing a property for $100k or less can offer $500 in earnest monies", and "anything over $100-150k, the buyer should probably offer at least $1,000". Further, Talford says that, "If it is over $200k, the buyer can expect the seller to ask for 1% of the purchase price during negotiations on a resale. If it is a bank owned, HUD or VA property, expect to pay $1000 to 1% in earnest monies no matter what the price." The maximum amount, Talford says, "depends on the bank or government program and what their specific guidelines are.", and says, "HUD and VA have the guidelines for each of their programs on line. Banks do not and each bank is different."

   Kelsey Lane of The Look Team Realtors in Silicon Valley, says that in their area, "the standard earnest money or good faith deposit is 3%. Almost all contracts we write has this amount.", however, Lanes says that, "the exception to this" was as little as $1000 earnest money., and says that, "It was in 2006. On properties that have been on the market for awhile, or in lower income areas, we see a lower percentage. However, in the in-demand areas, we still have multiple offers and if a buyer doesn't have 3% for their deposit, they aren't considered to be competitive or serious."

   Patrick E. Hudson, a Commercial Real Estate Attorney in Texas, says that, "The guideline on earnest money that I constantly see is 1% of the total purchase price. I see 1% in so many contracts that it must be the norm in our residential market." Interestingly, Hudson also mentions, "option periods" or "free look periods", where he says that the buyer, "can walk the deal and be refunded their full earnest money are typically $10 a day (usually, a 10 day option period for $100)." That sounds like a great option for anyone truly looking for the try-then-buy factor. "I've been a broker focused solely on the sale of foreclosure and short sale properties", says Bulandr, who says that the Earnest Money guidelines are, "fairly rigid on cash offers for foreclosure properties. It's generally 10% (or higher) of the purchase price."

   As for the Earnest Money physical funds, Bulandr says that, "If a contract is being properly represented by the buyer's attorney, earnest money will be protected.", and that, "In most states, earnest money is held in a trust account that can only be released after agreement is reached by both parties. Thus, if in a non-financing situation, I would suggest as much earnest money as down payment, with a minimum of 10%." He says that, "Again, depending on the state, you can stipulate that Earnest Money can be held in an interest bearing account if its a significant amount. As for financed situations, he suggests, "less than $1,000, but frankly, depositing Earnest Money up to the amount of the down payment is suggested."

   As you can see, there are many determining factors for Earnest Money. In part 2, we will be discussing some basic guidelines and rules for down payments. Thoughts? Questions?

Have a Great Day, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #earnestmoney #realestate #foreclosure #shortsales