Everyone can agree that the purchase of a new home can be very exciting. There is the adventure of shopping until you find your dream home and from there you write a check that says I am now a home owner. Since this does not actually go to the price of the home people often wonder why this money is paid and what it is used for.
Not Really a Down Payment
Just because it’s the first money a buyer puts “down” on the purchase of the new home many buyers call it a “down payment.” What if I told you that’s not correct especially if the purchase involves more money down later. Let me explain a buyer might buy a $400,000 house and pay $20,000, when they sign the contract, but have to pay more at closing.
What to Do With the Money
The whole purpose if this money is to show that you are sincere in your purchase of the home. This means that even if you don’t hand the money over to the broker at the signing you can place the money in an escrow account for later.
Where the Money Goes?
This answer depends on the state. In some states the estate contracts have a clause that tells you what bank the seller’s lawyer is using to hold the escrow. In states like California, all the money, even the mortgage, goes through escrow. More importantly the first payment stays in escrow until you own the home.
If Something Goes Wrong…
As with anything this depends on the terms of your contract. Always read your terms carefully to make sure you understand all the expectations and policies involved. .
Often you can get if back should something goes wrong. Here are some of the ways this is possible:
- the seller decides not to sell
- the bank denies your mortgage loan
- the inspector finds something seriously wrong
- property catches on fire before you buy
- you elect to cancel the contract
There are also reasons why you may not be able to get your money back. The main reason of course would be you deciding not to buy. What this means is that you can’t just jump up and change your mind just because. This is why it is very important that you take your time and are sure of what you want before you sign the papers and hand over the money.
If this policy wasn’t in place homes would never get sold because people would always be changing their mind. And remember this money isn’t a down payment but your way of telling the mortgage company you are serious about the purchase of the home.