The most asked question I get is, “Do you fund the Earnest Money Deposit?”
Funding Earnest Money Deposits
- Even if you are doing contract assignments, you may still have to put up an earnest money deposit with your original contract, depending on how savvy your seller is and how your contract reads.
- Of course, you’ll have to put up an earnest money deposit if the contract you are signing requires one for the contract to be valid.
- The options for funding earnest money deposits are:
- Number one – Borrow the money from a friend or family member, you can offer to pay them 20% for their money if you complete the deal, or 10% of the profits, whichever is greater. You only need to complete one deal to have enough for your earnest money deposit in the future.
- Number two – Put a clause in your purchase contract that you will deposit it on the closing date, and your transactional funder will then provide it as part of the amount he supplies to fund your A to B transaction.
- Number three – Agree to make the earnest money deposit after the inspection and use the end buyer’s funds for your earnest money deposit, which requires your contract with the end-buyer to specifically authorize part or all of his earnest money deposit to be used to cover your earnest money deposit with the original seller.
- Number four – Make the earnest money deposit $100 or less in your contract. In this case, you would have to be dealing with the seller directly, but do not give the seller your earnest money deposit. The earnest money deposit should always be escrowed by the closing agent until it is returned or used in your closing transaction.
- Number five – Borrow the money from a lender who specializes in this specific loan, I understand these loans have been available from time to time. I can’t refer a lender as most who have tried this type of loan have quickly stopped lending them.
- Number six – Agree to put the earnest money deposit as specified by the listing agent or seller’s contract and just don’t put it up which will buy you time to find a buyer for the property but you very likely will be sued for it later and have to additionally pay attorney’s fees.
- If you intend to make real estate investing a serious career, you need to tackle this first hurdle before you get started.
- Earnest money deposit and good faith deposit are the same but they are dramatically different from a “Down Payment”.
- Your earnest money deposits are the funds required to show good faith for the term of the contract.
- After closing, the buyer’s lender will require a “Down Payment” of 3% to 20%+ percent to secure his loan amount for the purchase.
- Remember, your earnest money deposit will not be at risk if you cancel your contract during the inspection so the same earnest money deposit can be used over and over.
If you have any additional questions, contact me directly at DaveDinkelQuestions@gmail.com.
If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
We have more five-star Google ratings than all the other transactional funders combined.
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