Purchase Contracts! (?)
So believe it or not, when you are making this HUGE purchase, it all gets (mostly) narrowed down to just 4 pages. There are other forms here and there, but the basic details of your contract are just 4 pages (in Connecticut, at least). Today I’m just going to focus on the section about the offer price and what each of the lines mean.
So if you’re about to buy a house in CT, you’ll probably see this area on the first page
You can probably gather that the ‘total purchase price’ is…your total purchase price. But how does it all break down?
(a) Initial Deposit. This is NOT your loan down payment. Completely separate. Initial deposit is also referred to as your Earnest Money Deposit (EMD). This is basically any amount you think will look appealing to the seller and indicate you are truly interested in the property. You can offer $0 but it’s generally a good idea to offer at least something. (Some foreclosures require a percentage of the offer price, say 10%). A good starting point is usually about $1000. This goes towards your total purchase price – it’s not an additional amount on top of your offer.
(b) Additional deposit. This is even more optional than the Initial Deposit/EMD. If you’re purchasing a house through regular sale (not foreclosure) you may decide to offer an additional amount after a condition is met, for example, offering another $1000 deposit after the inspection has been completed and there are no conditions. Again, if you put an additional deposit this goes toward your total purchase price.
(c) By proceeds of a bank/loan… This is where your loan amount goes (NOT including your down payment)
(d) Balance to be delivered in cash… This is your down payment minus your initial deposit/EMD.
At the end, everything should add up to your target total purchase price. Let’s see an example!
Offer price is $200,000. You’d like to give $2000 as the initial deposit. You can put $25,000 down. Here’s how that would look:
$2000 initial deposit (EMD), $25,000 down (minus the EMD of $2000 = $23,000), then your loan amount would end up being $175,000.
Hopefully this clarified what you’d need to put in each section. You can pretty easily catch a mistake (like putting $25,000 for the down payment) because your total purchase price would’ve added up to $202,000. Often, I fill these out on the computer and it adds them up for me/you, which is very handy to double check your work.