Happy Friday everybody! When you buy or sell a home, there's words or phrases that you have no idea what they are. Where two of these phrases are very vague but very important to both you, the buyer, and the seller. They are "down payment" and "earnest money deposit". Aren't they the same thing? No. They're actually two different promises that you are making. One is to the seller, and one is to the lender. The earnest money deposit, if you're the buyer, you find a home you're interested in, you make an offer. When that offer is submitted to the seller, it also has a check with it. That is the earnest money deposit, and that check is basically saying, "I'm interested in your home, and this is proof that I am."

Well, how much is that earnest money deposit? Typically, it's one to two percent of the asking price. So let's just say you're interested in buying a home that's $300,000. One percent of that would be a $3,000 earnest money deposit. The earnest money deposit may also be recognized as a good faith deposit because it's a promise that you are saying that you're going to carry through with the contract if they accept your offer, and you go under contract with the seller. It's like a good promise that "I'm going to carry it through until we close." So if you don't, then the seller gets to keep your earnest money deposit.

So what is the down payment? The down payment is the promise you're making to the lender. You want to get a loan to buy the home, and they're going to verify that you have the funds needed. It's also a percentage of the sale price, but it's different based on the loan type that you get, whether it's FHA, USBA, conventional, cash, it's something that is worked through with the lender, and they basically, during the application process, will let you know how much of a down payment you will need to make. And that's basically it. Generalized information that you're making two promises, one to the seller, here's the proof, I'm presenting you with a check. The seller can decide what they want to do with it. They may ask for more if they accept your offer, but knowing that this is a seller's market right now, and they have multiple offers, they may decide which offer to take based on the amount of the earnest money deposit that the buyer or potential buyer is offering.

And then, again, the down payment is your promise to the lender that you have the funds, which they're going to verify before they approve the loan. And if they do approve the loan, the more of a down payment that you make, the more likely your mortgage would be approved or the loan would be approved. And your mortgage payment may be lower, and you may be entering into a new home with equity.

So I hope that helps separate the two. The earnest money deposit is the promise you make to the seller, and the down-payment is the promise you make to the lender. Lisa Longest, with Realty Navigator. I'm here for all your real estate needs. Feel free to contact me at 443-786-4200 or you can email me at lisalongest.re@gmail.com. Make it a great weekend.