If you’re buying a home for the first time, understanding when and why you need to put down a deposit can be confusing. Whether you’re purchasing a resale home or a new construction, there are clear timelines and expectations for deposits like earnest and option money. Here’s a guide to demystify the process and help you confidently take the next step toward homeownership.
Earnest Money vs. Option Money
When buying a resale home, you’re typically required to provide two deposits once your offer is accepted: earnest money and option money.
- Earnest Money
Earnest money is often referred to as “good faith money.” This deposit demonstrates to the seller that you’re serious about purchasing their home. Earnest money is usually 1% of the purchase price but can vary based on the terms negotiated in the contract. This money is held by the title company.
- Option Money
Option money is a fee paid that grants you the right to cancel the contract for any reason during a specified period. If you decide to cancel within this timeframe, the seller retains this fee, but it gives you the flexibility to walk away from the deal before committing fully. This money is also held by the title company.
When Are the Deposits Due?
Both earnest money and option money are typically due within three days of the contract’s effective date. Here’s a general outline of the process:
- The buyer and seller agree to the terms of the offer.
- Both parties sign the contract.
- At this point, the contract becomes legally binding, and you’ll need to deliver your earnest and option money deposits to the title company.
If the third day falls on a weekend or legal holiday, the deadline is extended to the next business day. It’s important to note that time is of the essence when submitting these deposits. Missing the deadline could disqualify your option to cancel and potentially jeopardize other terms of the contract.
Deposits for New Homes
If you’re buying a new construction home rather than a resale property, the deposit process works a bit differently. Builders typically require earnest money but not option money.
Here are the key points to know about deposits for new homes:
- Earnest Money
Earnest money for new homes varies depending on the builder and possibly the neighborhood. It can range from about $1,000 to 2% of the home price.
- When Is Earnest Money Due?
Earnest money is due when you sign the builder’s contract, which is often before the builder countersigns. Your deposit must be submitted as a check or an online payment at the time of signing.
- Cancellation
Unlike resale homes, where the option money secures a cancellation period, most builders do not offer an option to cancel for any reason. Be sure to thoroughly review the builder’s terms and ask questions before signing.
Key Takeaways
For first-time homebuyers, here’s a quick breakdown to keep things straightforward when it comes to deposits:
- For resale homes, be prepared to pay both earnest and option money once your offer is accepted.
- For new homes, only earnest money is required, but cancellation options may not be available.
- Plan your budget to cover these deposits upfront as part of the buying process.
By understanding these details, you’re now better equipped to step into homeownership with clarity and confidence.
Need More Guidance?
If you’re feeling unsure about the deposit process or the specifics of buying a new or resale home, you’re not alone! Our experienced team specializes in helping first-time buyers just like you. With 60+ years of combined experience in residential real estate, there are no questions we can’t answer.
Contact us today to get tailored advice, support, and answers to all your questions.
Call or text us at (512) 827-8323, email info@11OaksRealty.com, or complete this quick Buyer Survey to get started!
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