Ways you could lose your earnest money and how to protect yourself.

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Can you lose your earnest money when you’re buying a home? In short, yes. The seller has a right to keep that money under certain circumstances. If the buyer decides to cancel the sale without a valid reason or doesn’t stick to the timelines, the seller could get some of the earnest money.

 

This is why you need to be careful when you’re writing an offer today. There’s so little inventory that you might waive contingencies to win the bid. However, if you waive those contingencies, you could lose your loopholes to get out of the contract. 

 

You want to make sure you keep your inspection period. One way to do that is with an as-is rider. This allows you to have an inspection, but you won’t ask for anything unless there is a major defect. Then you can decide whether you want to move forward or not without losing your earnest money.

 

"Your contingencies are meant to protect you throughout the process."

 

If there’s a mortgage involved, there will always be an appraisal contingency. With this contingency, if the property doesn’t appraise for the asking price, you have the right to renegotiate the sales price with the seller. If you can’t come to an agreement, you can get your earnest money back.

 

If something prevents you from getting your mortgage, you could also get your earnest money back. You might have lost your job, caught COVID, or had some other hardship. If one of those causes you to lose your mortgage, you can get your earnest money back.

 

So there are a few things that protect buyers and keep them from losing their earnest money. If everything goes fine and you meet all your deadlines, you will close on the house, and that earnest money will be applied to your closing costs. However, if you don’t have a valid reason to pull out of a contract, you could lose that money. That’s why you want those contingencies in your offer—to protect you throughout the process. 

 

If you have any further questions, feel free to call or email us. We would love to help.