Once you write a contract you will typically write two checks, one for the Option Money and the other for the Earnest Money and both must come from an Acceptable Source of Funds. Both will be credited to you at closing and can be applied towards your Down Payment or Purchase Closing Cost, but both may not return to you should you cancel the contract.
Earnest and Option Money must come from an Acceptable Source of Funds.
The option money check will be made payable to the seller and is typically for an amount between $100 to $300 depending on the purchase price of the home. The option money will be credited to you at closing. Should you decide to walk away and cancel the contract however, you will forfeit this money.
Note: New Construction typically does not require any option money, only earnest money.
The “big” check you write when executing a contract will be for the earnest money which typically is about 1% of the purchase price (or $10,000 for new construction). Like the option money, the earnest money will be credited to you at closing and is applied towards your down payment or closing costs. However unlike the option money, you may be entitled to get your earnest money back if you decide to cancel a contract during the option period. Check with your Realtor if you have questions about this.
Documentation for Option and Earnest
For both the option and earnest money, the mortgage world will need copies of the canceled checks AND a bank statement showing the funds leaving your bank account. If these funds were a gift then please see Gift Funds and contacts us immediately to discuss.
FYI, if you’re buying new construction you may want to be proactive and save your bank statement and the canceled check after the earnest money clears since it may be six to eight months before you close. It’s a bit of a pain to have to go back and find that paperwork later. Feel free to send that documentation to us – we’ll put it in the file so you don’t have to worry about it down the road.