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After you have come
up with an offer price, the next step is to determine how large a deposit
you want to make with your offer. You want the "earnest money deposit" to
be large enough to show the seller you are serious, but not so large you
are placing significant funds at risk.
One recommendation is
to make sure your deposit is less than two percent of your offered price.
The reason for this is that if your deposit is larger than that, the lender
will pay particular attention to how you came up with the funds. You might
have to provide a copy of a canceled check along with a bank statement showing
you had the money to begin with. Normally, this is not a problem, but if
you have a short escrow period or are barely coming up with your down payment,
it could pose an inconvenience.
Another reason to limit
your deposit is "just in case." Although significant problems are the exception
and not the rule, they do occur. "Just in case" there is a nasty or prolonged
dispute between you and the seller, the less money you have tied up in a
deposit, the fewer funds you have placed at risk.
As with practically
everything in real estate, there are exceptions to this rule, too. During
a hot market there may be multiple offers on the property that interests
you. A large deposit may impress a seller enough so they will accept your
offer instead of someone else’s, even when your unknown competitor is offering
the same price or slightly higher.
Since large deposits
do impress sellers, you may also find that by making a large deposit you
can convince the seller to accept a lower offer. More money up front may
save you money later.
There are also times
when closing can be delayed by weeks, through no fault of your own. Have
back-up plans prepared for such a contingency.
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