What is the difference between
Earnest Money and Down Payment?

When you are involved in buying or selling a property, there are a lot of real estate terms flying around that you should understand.  Often buyers are confused about the difference between earnest money and down payment. 

Earnest Money

Earnest Money is a deposit that is usually offered along with an offer to purchase real estate.  This deposit is meant to show good faith and true intent to purchase.  The buyer has something to lose if they decide to walk away from the signed contract without a reason that has been agreed upon on the purchase and sale.  The amount is negotiated between the buyer and seller.  In Maine we usually see a minimum of $500 earnest money - going up from there depending on the purchase price of the property.  As long as the sale closes as expected, the earnest money is applied towards the buyer's closing costs. 

Down Payment

A Down Payment is the amount of money a buyer pays out of pocket toward the purchase before a lender will provide a mortgage on the property.  The amount of the down payment depends on the type of mortgage, the buyer's credit rating, and other factors.  Occasionally there is a mortgage with no down payment but usually the down payment amount is between 3% and 20% of the purchase price of the property.

Do you have questions about buying or selling real estate in Maine?  We want to help!  Send your question to us by clicking here or call us at (207)784-3800.