The Difference Between Down Payments and Good Faith Deposits

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Today I’d like to explain the difference between good faith deposits and down payments. They’re fairly similar and a lot of my clients confuse them.

A down payment is basically telling how much a buyer is willing to invest in a property whether it is by choice or required by the bank. VA buyers aren’t required to put any money down, and FHA loans require 3.5% down. Conventional loans typically require 10-20% down on a home. If you put down less than 20% on a conventional loan, then you’ll be forced to pay private mortgage insurance. This money must be brought to the table one week prior to closing escrow.

A good faith deposit is typically 1% of the purchase price. The difference here is that money needs to be deposited in escrow within 48 hours of acceptance. So basically, the good faith deposit shows how eager you are to buy the home. However, if you go through the contingency period and then decide not to buy the home, that good faith deposit is usually non-refundable.

That’s it for now, but if you have any other questions about real estate in San Diego, please don’t hesitate to contact me!

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