What is Earnest Money? And, What Are Pre-Paids?
Compiled by guest “vloggers” Allison Parks and military veteran Kimberly McAleenan of Conscious Real Estate, this is the second installment of a monthly blog series for 2018, providing tips to the military/veteran home buyer. Contact Allison and Kimberly via the Conscious Real Estate website for additional information.
When you buy a home with a VA loan, you have the option of putting zero dollars down (awesome!). Most people choose this option for good reason. However, you will still have to have earnest money. Earnest money shows that you are dedicated to buying the property and that you are literally putting your “money where your mouth is.” Sellers want to see earnest money because they too have a lot of work to do on their end and they want to be sure the buyer is serious about going forward with the sale.
What is “Earnest Money” exactly? Do I get it back?
It’s your money and you are surrendering it, but, you DO get it back and it will help you with your “Pre-Paids” later. This means that it can help cover insurance for a couple of months, a loan origination fee if you have one, and your appraisal. It’s really nice because at your closing, you will get a bit of the money back (and some of your fees will have been covered by it too!). Know that you will have a bit of Earnest Money to put down when buying a home with a VA Loan even if you opted for the zero money down option. So, be prepared.
How much Earnest Money is usually required?
Usually with a VA Loan, you will have to put down 1 – 2% of the home price you are looking to buy. So, for a $350,000 home, that would be between $3,500 and $7,000 depending on the terms. And, it is due within two days of getting your offer accepted. So, it moves quickly and in order to secure your offer, you’ll want to have this money ready to put down.
How do I pay the Earnest Money?
In Colorado, the Earnest Money is paid to the Title Company. Yet remember that you will get a portion of it back at the closing after covering costs such as the appraisal and other various items. Again, Earnest Money is simply a manifestation of your seriousness of going forward with the sale. In other words, your “good faith” in a real estate transaction. If you don’t have the Earnest Money prepared two days after the offer, you could end up losing out to the next person interested. But, if you have a good real estate agent, they will fill you in on all of the fine print that goes with buying a home and the ins and outs of the VA Loan process.
Real Estate Agents that work with VA Loans
There are about a million (exaggeration or no?) real estate agencies to go with in Colorado, but we have worked with Conscious Real Estate and tend to recommend them due to their military home-buying experience as well as their charitable contributions. At their firm, they have ex-military agents who have not only gone through the process themselves but also know how to help others through it. The bonus is that with every sale, they donate to charity. Click here to connect with an agent and learn more if you’re about ready to start on the road towards home ownership.