Due diligence and earnest money is a recent (last 4 years) introduction to ensure that buyers are real. Too often buyers would make offers and walk away. Of course, only 7 years ago we were able to close a buyer in under a week - so it wasn't a big deal if the buyer walked. Now that it takes at least 12 days to close on a  home (with many larger lenders it can take 60+ days - but that's not us, we generally close in 21-30 days) the seller is financially hurt by entering a contract with the buyer if that contract/home doesn't close. 

Enter, due diligence and earnest monies. Due diligence is the money that the seller keeps immediately for the acceptance of the contract (sometimes savvy buyers will even move the timing of this from immediate to a week later, so the buyer can at least get inspections done). Earnest money is additional monies that the buyer gives to the seller after about a 3 week period (this date is adjustable too). In all, generally speaking a Realtor will suggest 1% of the purchase price (split 25% towards due diligence and 75% towards earnest money). For example, on a $100k purchase price the home buyer would write a check for $1k (250 towards due dil and 750 towards earnest money). 

These funds ensure the seller that the buyer is real. If the loan closes, the buyer gets to use these funds to pay for closing costs, etc. 

In addition to these upfront monies (your check is cashed and held in escrow), you can expect to pay for an appraisal ($450 for smaller fannie loans, $525 for USDA, and $750 for jumbo); a home inspection ($500 or so, arranged through your Realtor); pest inspections (including Radon, if you have a basement - these are like $80 for Radon and $100-200 for pest inspections). 

As you can see, if you aren't properly prequalified - or don't have access to proper mortgage options (Remember, credit unions often times don't offer 30 year fixed; banks often times don't offer 100% financing through places like USDA; and other lenders often times don't do this or that - use a broker, we have access to almost all loan programs) - you can typically count on losing about $4,000 on a $300k purchase. That assumes you find this out after the first 3 weeks. You can be disqualified for the following reasons:a. job loss; b. credit score reduction; c. job change; d. material changes in finances; e. changes at the wholesale lender. So, as you can see, you want to hire a broker that has experience and has ZERO BBB complaints ever to date. 

It's your money. It's up to you to protect it. Don't assume that an unlicensed loan officer will care about spending your money. At ADRMortgage, we not only care, but we are legally your fiduciary (that's another article). Take care, happy house hunting, and thank you for supporting - your Virginia and North Carolina solution to your home financing needs (Fannie/Freddie, VA, USDA, FHA for all US citizens in Virginia and NC). 919 771 3379 - Andy May. Please see our licensing and disclosure info on our site.

Posted by Andrew Walter May CEO on August 2nd, 2018 4:08 PM


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