You're buying a home! It's an exciting time, and you've got a lot going on to make it happen. But what happens if you decide you don't want to buy the home anymore? What happens to your deposit money at that point? Do you get it back? Does the seller get to keep it? Read on to find out what the process is like here in New Jersey!
How do deals fall apart?
There are three hurdles you have to overcome when buying or selling a home, and any one of them can be the reason why you might not proceed with the purchase. Let's take a look at them.
- Attorney review - Once you have a signed contract, you and the seller have the right to have an attorney review the contract, and make sure there is nothing in there that would work against you. During the attorney review period, either party can cancel the contract for any reason. That means that, if you decide you don't want to buy anymore, you can cancel the deal. It also means that, if the seller gets a better offer, they can kill the deal with you and sell to the new buyer.
- Home inspection - You have the right to have a home inspection when buying a home. A standard home inspection includes checking out the roof, the grading of the property, the major systems of the home, and typically includes a wood destroying insect inspection and a radon test. You can also have extra inspections performed, for such things as mold and lead based paint, as you see fit. Once the inspection is complete, the inspector will give you a report detailing their findings. You can then ask the seller to make certain repairs, or give you a credit. If you can't come to terms on the home inspection issues, you can walk away.
- Mortgage commitment - There is a section of the contract called the Mortgage Contingency Clause. That is the date by which you have to have your mortgage commitment. If you don't have the commitment by that date, either party can cancel the contract.
So what happens to your money if you walk away?
In real estate transactions in New Jersey, the buyer will typically give an earnest money deposit, either when the offer is made or when the offer is accepted by the seller. Once attorney review is over, the second deposit is then due. This is a portion of the total down payment. For example, say you were buying a home with 10% down on a purchase price of $200,000. You could give a $1,000 earnest money deposit, $9,000 for the second deposit, and bring $10,000 with you to the closing to complete the down payment. All of this money is held in a non-interest bearing account, either by one of the attorneys or by the buyer's real estate agency.
Now here's the good news - if you walk away from a purchase for one of the reasons listed above, your deposit money is returned to you. Whether you cancel during attorney review, if you and the sellers can't agree on home inspection issues, or if you can't get a mortgage commitment, you get your money back. Many years ago, it was common practice for the seller to keep any deposit money given, but that is no longer the case.
There is something to consider though. While you can get your money back if you can't come to terms on those items, if you haven't acted in good faith and breach the contract, the seller can take you to court to recover damages. Thus, it's always a good idea to speak with your attorney about these issues before making any final decisions.
If you need some guidance
If you are thinking about buying a home and are looking for some guidance, please feel free to call me at 908-705-5110, or email me at mark@MoveMeMark.com. I'm happy to answer any questions you may have, and help you put a plan together to make that new home a reality. And feel free to take advantage of the advanced home search we have here on MoveMeMark.com, with home listings updated EVERY five minutes! You can find it by clicking here. Best of luck on your move!