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I am in Vancouver and planning to buy a townhouse. There is approximately a difference of 2 months from the day I make the deposit to the closing day (which I see as the funding day). I am starting my new job in 2 weeks (which has been mentioned on my mortgage application ) and on basis of it I am receiving the mortgage. The earnest money here is Vancouver is 5% of the total property value which is basically all my deposit/savings.

In the offer that was accepted, we asked for 7 days for subject removal for financing and the next day I am supposed to make the deposit (I did not know mortgage can be denied at any point until the closing). I want to be sure that I do not lose the EM for any reason. What is the best course of action for it? I do not want to risk the EM because it it close to 30K and I can't afford to lose it. How do buyers protect themselves here? I will still be in probation at the time of closing, which will be about 2 months from the time I am supposed to be making the deposit. Please guide.

  1. Should I move the dates around in any way to make sure that my EM will be safe no matter what?

  2. How do buyers protect their earnest money as it's a pretty big number. I don't see how do people take any sort of risk with it. Am I doing something wrong here?

  3. When is the best time to make the deposit (It was supposed to be 7 days from the day of accepted offer) but i feel it's too soon if closing is not until next 2 months. What do you think it should be ?

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    do you have an agent/representative? Have you reviewed the contract regarding the deposit and contingencies? Jul 21, 2020 at 11:41
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    EM is almost always refunded to the buyer. I know of a case where a buyer just wanted out, so he called his mortgage broker and asked that the loan be denied. His deposit was returned. But speak to your realtor to be sure.
    – Pete B.
    Jul 21, 2020 at 12:15
  • @PeteB.Not after subject removal right? My realtor says we remove the subjects/financial contingency in 7 days from accepted offer, wherein I only get the conditional mortgage. She said EM is never refunded to the buyer but is a security for the seller for his time if the deal does not go through. What do you think?
    – systemdebt
    Jul 22, 2020 at 0:39
  • @mhoran_psprep: I have. My realtor says we remove the subjects/financial contingency in 7 days from accepted offer, wherein I only get the conditional mortgage. She said EM is never refunded to the buyer but is a security for the seller for his time if the deal does not go through. What do you think?
    – systemdebt
    Jul 22, 2020 at 0:39
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    I had a mortgage get denied after a preliminary approval, and the seller refused to refund the earnest money even though there was a clause in the contract that it would be refunded if we couldn't get financing. Maybe I could've gotten it back if I'd involved a lawyer, but I don't know because I didn't do it. So definitely don't assume they'll happily hand it over if something happens with your financing.
    – Kat
    Jul 22, 2020 at 17:18

2 Answers 2

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In the Canadian system of buying houses, your offer is binding once accepted. You've bought the house. It's a few months until keys are exchanged and you move in, but the deal is done. You don't "protect your earnest money" -- it's not really yours any more. You've made a partial payment (often called a downpayment) towards the deal that is done and is 100% going to happen. (Once the conditions are off, including the condition on getting financing. These typically come off within days of the offer.)

There is perhaps a small chance you will have your mortgage denied between now and closing. If you were to lose your job, fail to find another, and tell the bank you were unemployed then they might withdraw the financing. This worry would be a reason not to make an offer on a house right now, not a reason to try not to make a solid downpayment on it.

You imagine yourself in a pickle if you have to cancel the deal and don't get your downpayment back. But imagine the sellers: suddenly they own (and have to pay for) two houses. They aren't getting the other 95% of the house price from your bank -- which they would be using to pay most of the price of their next house -- and it's possible their deal for that next house will collapse, costing them their downpayment on that deal. The larger your downpayment, the smaller the chance you will actually walk away. Plus, the sellers can use that money to help deal with the real costs to them of you deciding to cancel a deal that was made and settled months earlier.

The only way to be sure your downpayment is "safe" is to close the deal and move into the house. It's not money you can expect to get back if your actions after the conditions come off cause the deal to collapse. You may not feel it's "your fault" if the bank changes their mind on the mortgage, but it sure isn't the seller's fault.

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I can't comment on the amount of the earnest money deposit. I am in the US and it has been years since I bought my last house.

The purpose of the EM is to convince the seller to remove the house from the market. They have some confidence that if the potential buyer isn't serious there is hope of getting compensation for the delayed sale when they have to put it back on the market.

When is the best time to make the deposit (It was supposed to be 7 days from the day of accepted offer) but i feel it's too soon if closing is not until next 2 months. What do you think it should be ?

Make the deposit when the contract tells you to make the deposit. If you don't make the deposit the contract terms haven't been met. The seller will not be expected to remove the house from the market until they get confirmation the money has been deposited into the specified escrow account.

Time from offer to settlement varies depending on the local market, time of year, and the economy. Your mortgage application is competing with people refinancing their mortgages.

Don't count on being able to get your money back if the mortgage falls through. The terms of the contract will specify who gets the funds if the deal doesn't take place. Especially don't expect that you can get the money back if your do something blatant as was suggested in one of the comments.

Your mortgage application is risky for a couple of reasons: the job change and the lack of savings. If the EM deposit will exhaust most of your savings then your margin for error regarding affordability is near zero. Expect that they will check you employment and bank balance information just before they fund the mortgage.

How do buyers protect their earnest money as it's a pretty big number. I don't see how do people take any sort of risk with it. Am I doing something wrong here?

Buyers protect themselves by doing everything they can to make sure that the house is affordable and the mortgage will be approved. If getting a mortgage now is risky because you will still be in the probation period, then maybe the answer is to wait until the job is more secure.

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