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What
is Earnest Money?
"Good Faith Money"
When you find a house and write up an offer, you must accompany the offer with what’s called “Good Faith Money’ or “Earnest Money”.
The purpose of this money is to show your seriousness as a buyer, to purchase the property. The amount of Earnest Money is negotiable between buyer and seller, and is usually based on the sales price. You will give this money, usually in the form of a check, to the real estate broker you are working with, such as the MICHIGAN HOME BUYERS Association.
This is YOUR money, but must be held in an “escrow account” by your real estate broker.
According to Michigan law, the real estate broker holding this money must deposit it within 48 hours of the seller’s final acceptance of your offer. When your mortgage is ready to close, this money will come out of your broker’s escrow account and be credited to you at closing and applied towards your closing costs and/or required down payment.
If you make your offer “contingent” upon a favorable home inspection, and the home fails, you are entitled to a full refund of this money and can look for another home.
If you make your offer “contingent” upon your financing, and you do not obtain a final loan approval, you are also entitled to a refund of this money.
If you had a favorable home inspection, a final loan approval, and for no other reason decide to change your mind and no longer wish to purchase the home, you will then forfeit this Earnest Money to the seller of the home. This money then helps compensate the seller for lost time obtaining other buyers.
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