This is continuation of my FHA blogs.  Please visit the first installation on Flipping Rules , my follow up to Flipping Rules and also my blog on FHA Fees.

Can the earnest money on an FHA loan purchase be forfeited?  Yes, but not often.  If the buyer’s loan is denied, then the earnest money deposit is to be returned.  Your buyers must be careful, just because they are doing a federal insurance loan (FHA), doesn’t mean they are bullet proof in receiving their earnset money back.  If a buyer elects to cancel the transaction without reliance on a contingency and/or has already rendered his/her/their earnest money deposit nonrefundable and again the loan is not denied, the earnest money can be forfeited, even on an FHA loan.

From the, “100 Questions & Answers About Buying A New Home,” we find question number 31

“31. WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?

Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.”

HUD Home Purchases – this blog is NOT addressing HUD Home Purchases and (homes owned by HUD and sold through HUD) and how HUD earnest money forfeiture  is dealt with in those sales, also known as HUD-9548 sales.

You might have also seen this type of language:  “buyer shall not be obligated to complete the purchase of the property … or to incur any penalty by forfeiture of earnest money … unless the seller delivers … a written statement issued by the Federal Housing Commissioner setting forth the appraised value of the property …”  Don’t be confused by this form HUD 92900-A;  it is all part of the loan package as created by the loan officer procuring the FHA loan and does not give the buyer a right to an earnest money refund unless, again, the buyer did not qualify for the loan or the loan could not be issued.

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