In this article, we’re answering “Is earnest money refundable?”
This is a very important consideration when you’re getting ready to make a downpayment on a home or other assets.
After all, if something happens to impact your decision to move forward, you wouldn’t want to find out that your earnest money is not refundable.
In this article, we’re going to share everything you need to know about earnest money. Including how to navigate whether it is refundable in your situation or not.
This article is part of our free series on US banking and credit basics, ranging from how to get a credit card with an ITIN number to answering questions about buying homes in the US.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Is Earnest Money Refundable?
- What Is Earnest Money?
- Frequently Asked Questions
- Ready to Open Accounts With Banks in the USA?
Is Earnest Money Refundable?
Yes, earnest money is refundable when the specific conditions for a refund are met. Of course, these conditions need to be agreed upon and written into a contract prior to the earnest money being issued to the seller. If the conditions for a refund are not met, the earnest money does not need to be refunded.
Alternatively, if you are in the process of acquiring a mortgage, you need to understand the terms of mortgagor vs mortgagee before you start applying for financing.
Before diving in any further, if this is your first time visiting GlobalBanks, don’t forget to download your FREE US Banking Starter Guide. It’s designed to help non-residents with opening bank accounts at top financial institutions in the US.
What Is Earnest Money?
Earnest money is a financial commitment that is made by the prospective buyer to the seller of a property. It indicates that they intend to move forward with a purchase, as long as certain conditions are met. In most cases, earnest money can only be refunded when the agreed-upon conditions are not met.
Is Earnest Money a Money Deposit?
Yes, earnest money is a money deposit when a prospective buyer intends to purchase a home. Before missing earnest money the prospective buyer and the seller agree to the specific terms in which earnest money will be returned. In most cases, reasons for a refund include issues with the property, including failed inspection and unmet conditions. Not surprisingly, when conditions are not met and a prospective buyer decides not to move forward, the earnest money is not refunded.
Do Home Buyers Need to Make a Money Deposit?
Yes, home buyers need to make a money deposit. This deposit is known as earnest money. It is issued by the prospective buyer to the seller of the property as a financial commitment that they intend to move forward with the purchase. Deposits can only be returned to the prospective buyer in certain circumstances, known as contingencies. These contingencies are signed and agreed to before the deposit is used.
Do You Have to Submit a Money Deposit for a Home Inspection?
In most cases, you have to submit a money deposit before conducting a home inspection. That said, whether or not a property passes or fails a home inspection is often one of the contingencies that can lead to a deposit being refunded. Of course, it is important to make sure this is included in the reasons for a refund prior to issuing a deposit.
Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into if earnest money is refundable. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Do You Get Earnest Money Back?
Yes, you get earnest money back when the specific conditions for the refund of earnest money are met. That said, when the conditions for refund are not met, the earnest money will not be refunded to the issuing party. The specific conditions for a refund are referred to as contingencies and are agreed upon by both parties before the earnest money being issued by the prospective buyer to the seller of a property.
How Do You Lose Earnest Money?
You can lose earnest money if you, as the prospective buyer, decide not to move forward with a transaction for reasons other than those agreed upon before the earnest money being issued. In other words, if a prospective buyer has a change of heart about a property, they will not get their deposit back. On the other hand, if a property does not meet certain agreed-upon standards or conditions, then the earnest money would be returned to the prospective buyer.
Who Keeps Earnest Money if a Deal Falls Through?
Who keeps earnest money if a deal falls through will ultimately depend on the reason that a deal was terminated. For example, if a deal does not proceed because the prospective buyer of a property (issuer of the earnest money) changes their mind about wanting a property, then the seller of the property (recipient of the earnest money) will keep the funds. On the other hand, if the property fails inspection and the prospective buyer of the property is permitted to exit the deal without penalty, the earnest money will be returned to them.
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