Can I Borrow an Earnest Money Deposit?

An earnest money deposit is first made when a buyer wants to show their interest while seeking additional financing. Traditionally, it totals 1-3% of a house’s listing price.</span> Can I borrow an earnest money deposit when needed? Depending on the market, a seller or agent may require you to pay a flat fee no matter the price.

Sometimes you can win a bid on a house if you give the buyer an earnest money deposit that’s larger than average.

After all, the larger the deposit, the more “earnest” you are about the sale!

Since earnest money is not applied to the expected lender fees and inspections, you’ll want to save some cash for any upcoming transactions before the closing date. But can you borrow it while you’re waiting for financing to kick in?

First, know that you normally can’t borrow your earnest money deposit. Lenders see this as “good faith” money, so it’s best to use your own funds. Putting your own money down shows you’re a trustworthy borrower and capable of making future payments.

It’s also essential that good faith money is not only verified but documented, so don’t pay it in cash. The buyer needs evidence that they have the assets to pay off their loan. A bank statement is a great way to prove sufficient funds. Depending on your lender, they will have different requirements.

Earnest money can, however, be paid as a gift from a close friend or family members, such as a parent or sibling. If this is the case the lender must know so you can fill the requirements of a gift documentation request. This is a great way to get the funds you need if you don’t have them on hand.

In a for sale by owner transaction, don’t give the money directly to a seller if you can help it. Give the deposit to a closing attorney, escrow company, or another relevant third party. This is because if a deal doesn’t work out, you want to be able to get the funds back.

Discover What is Earnest Money