HOW TO LOSE YOUR EARNEST MONEY

This is every buyer's nightmare. Putting down a substantial amount of Earnest Money on a home and then losing it. In some respects it is difficult to lose your Earnest Money, but if you and your agent are not paying attention it can happen. Here are some of the reasons that buyer's lose their Earnest Money.

1. They are not really pre-approved and they don't cancel the contract or ask for an extension by the Loan Denial/Appraisal Deadline in the contract. How this happens is that you tell your agent you are preapproved for your mortgage. You give the agent their name and number and the agent calls that loan officer and obtains a preapproval letter. Some agents don't quite know what to ask the loan officer so they figure that if they say you are good - then you are good.

But the reality is that if the loan officer has only been given verbal information to base this approval on, you are not preapproved. Everything may sound great, but then the loan officer orders the Verification of Employment that shows you have only been receiving overtime for 15 months and not the 24 months they require and quess what? You may no longer qualify for the loan. If this Verification of Employment comes in after that Loan Denial Deadline and you have to cancel, you will lose your Earnest Money Deposit. So it is very very important that you really really have your loan together prior to putting in an offer. If you don't, then make sure that you are paying attention to the dates in the contract. Can your loan officer get you through underwriting prior to that deadline. If your loan officer needs 3 weeks to get it through underwriting, then you either need to push out that deadline or find another loan officer. A lot of mortgage companies can underwrite in less than a week if you have all of your information into them.

Now you can ask for an extension of the Loan Denial/Appraisal Deadline from the seller if you get closer and you are still not done. But don't plan on them giving it to you. To the seller it looks like there is a problem. I can not tell you how many times buyer's agents have told me there is no problem they just need a little more time and bam - the loan is denied and they want the Earnest Money returned. So, in other words, if you ask for an extension you most likely will not receive it.

2. Missing the Due Diligence Deadline. This is not very common, but with our new Utah contract, all items must be resolved prior to that deadline. The old contract stated that you had until 5:00pm on the day of the Deadline to either submit your objections or cancel. But the new one says you have to resolve the issues or cancel by that 5:00pm date. So a lot of agents who aren't very active are missing this date.

To avoid a problem, you should have your objections to your inspection into the seller at least 3 days prior to that deadline. If the seller has not responded by the day of the deadline, you can ask for an extension, cancel the contract or purchase the house without those items fixed.

I highly recommend that you have your inspections done within the first week that you are under contract. You want to know as soon as possible if there is a major problem so you can go on and purchase a different home. This also gives you enough time to get professionals in to look at the items that the inspector has found and determine how much it would cost to fix them if the seller refuses.

Just remember that no house is perfect. There are always items that are found during an inspection. What you need to determine is what items you are willing to live with and what items you are not willing to live with. If you can't live with them and the seller won't fix them then make sure you cancel by 5:00pm on the Due Diligence Deadline because at 5:01pm on that day you no longer have a right to get back your Earnest Money Deposit.

3. The buyer goes out and charges a bunch of furniture right before closing. Some mortgage companies re-run the credit report between the closing (you signing the papers) and funding (the next day when they wire the money to the title company), if they find you have taken out additional credit, they will add that debt into your debt ratios. If you still qualify for the loan you are okay, but if you don't, they won't send the money to the title company and the sale falls through. Since this date is past the Loan Denial/Appraisal deadline, then you will lose your Earnest Money Deposit. So don't do anything with your job or credit between putting in the offer and getting the keys.

4. The loan officer orders the appraisal too late. Since a lot of loan officers have to pay for appraisals even if the deal fails, they are hesitant to order them unless they know the deal is a go. So some loan officers will wait until you are out of the first round of underwriting or until after you have had your home inspection. But if they wait too long it could come back to bite you. It would be great to say that all houses appraise for the purchase price, but that is not always the case. If you find out after your Loan Denial/Appraisal Deadline that the property hasn't appraised, the first thing you would do is go tothe seller and see if they will reduce the purchase price to the appraised value. If they won't or can't, then you would either need to bring in the difference between the purchase price and the appraised value in cash or cancel. If you cancel after the deadline then you will lose your Earnest Money Deposit.

So those are the three main reasons that buyers lose their Earnest Money Deposit. A good agent is always aware of the deadlines and will follow up with all of the other cogs in the wheel on your behalf. I usually call the loan officer for my buyers every week to see what is needed and where the file is. If the loan officer needs something I will run out and get it from the buyer and drop it off. The goal is to get the underwriting done as fast as possible.

If you have any other questions regarding the Earnest Money Deposit, don't hesitate to call me at 801-792-1257.