Earnest money deposit

[Anonymous]

How do people come up with a 5-6% earnest money deposit if they plan to buy a new house before selling their current one? I guess this would be also be an issue for people who's current house is under contract, but not yet closed, and who want to put an offer on a new house. (They need the 5-6% in cash for the deposit on the new house, but have not yet closed on their current house.) We have enough equity in our current house to put a good amount down on a new house, but don't have the tens of thousands of dollars in cash sitting around for a deposit.

Thanks!

[Anonymous]

We had a savings account (mainly an emergency savings account) that was quickly accessible, and we used that money to put down the deposit.

[Anonymous]

Also, does it have to be 5-6%? We initially wrote 2% deposit in our initial contract, and one of the counter-offer contingencies came back asking for 3%.

[Anonymous]

We just did this--we only had to put down 3%. We had money is a savings account that we'd been putting away because we planned on this coming up. You may want to see if they will accept 3%. The earnest deposit is really only to make sure you are in fact earnest and willing and able to complete the transaction.

[Anonymous]

NP here. Savings account. 6% deposit. This is our first house, and we have saved rather aggressively for it.

[Anonymous]

OP here. Our realtor told us that 5-6% was necessary in NW DC. On a $1M house, that's $50-60K! We would really struggle to come up with that and would have to liquidate virtually all of our assets (not including retirement accounts.)

[Anonymous]

I don't think the 5-6% is necessary, unless the other party is asking for it as part of the contract. As long as the other party agrees to less, I don't see what the problem is. We did 3% on a 1.1M home in Mclean.

[Anonymous]

I would think twice about buying $1M house if you can come up with $50,000 cash. Old houses (most of in NW are expensive plus you need emergency cash for job loss situations.

OP do you think you can get a contract on a house without having sold your current house? I think that would be a bigger issue. Or have you a contract on your current already?

[Anonymous]

If you don't have any cushion, I think that is a very good indication that you should sell first. Imagine how difficult it could be on you if you had difficulty selling after you put a contract down on another house. You could be carryng two mortgages, or lose the earnest money if you cold not sell in time. Or what if you were forced to take a low offer on your current house because of the close on the new home? No one is excited about contingent offers btw.

Sure it is difficult to sell first, but it's not impossible. We just did it recently with a 2 yo and a baby on the way. The possibility of having a few months of transitional housing was not appealing, but we did not like the idea of owning two homes at once. And I think you will find that once you have a contract on your house, you have plenty of time to start putting down offers on a new home assuming you know the houses that you are interested in and have the strength to see some of them go before you are ready.

So be patient and smart. Don't be reckless. This is not about 50K. This is about a million dollar transaction and another one in the six figures.

[Anonymous]

15:14 here. I meant

"I would think twice about buying $1M house if you can't come up with $50,000 cash. Old houses (most of in NW are expensive plus you need emergency cash for job loss situations."

[Anonymous]

Agree with PPs, that if you don't have the money for an earnest deposit, do not buy a house. Especially in this economy, you do not know when your home will sell.

[Anonymous]

OP here. I appreciate the PPs' advice, but I'm not worried about our house selling. It is in a very desirable neighborhood, steps from a metro. The only reason we are moving is because we need more space. Affording a $1M house is not the issue -- as I mentioned, we have a good amount of equity in our current house -- it's just coming up with $50K cash before selling the house. We would have the same issue if we put our house on the market, it went under contract, then we needed to put down a deposit on a new house before our old house closed, right? The only way to avoid this is to close on the sale of our house, move into an apartment, buy a new house and move again. That seems like a huge waste of time and money. We can struggle to come up with a 5-6% deposit, but I would really like to avoid liquidating all of our assets to pay the deposit.

It sounds like a number of PPs paid a 3% deposit, which would be more doable. I'm just wondering if our realtor is right that 5-6% is the standard in DC.

[Anonymous]

14:35 here with the 6% deposit. We are buying in Bethesda, so not the same location, but I think it is not so much a question of "what is the norm" in your area than your perception of whether your offer will be seen as stronger if you increase your deposit. Competing bids, desirable property, etc... Only you can judge that, and if you can get away with less, all the better!

[Anonymous]

We bought in NW DC in 2007, the house was slight over $1million and we put down less then 5% when we signed the contract. We paid the balance of the 20% deposit at closing and the sellers did not have an issue. If I were selling, I would be more concerned with the fact that you need to sell your house before you can close on the purchase of mine.

[Anonymous]

I would think you need enough to make it clear that you would think 2x about walking away, but it seems like that could be $25-30k.