I have seen a few buyers be in a pinch for one reason or another, and not have immediate access to their checkbook. As a result, when writing an earnest money deposit as part of a real estate contract, they use any source they can find, such as a friend or a parent, figuring they’ll pay them back later. However, that can create a problem or at the very least more paperwork.
If you use someone else’s check as your earnest money deposit for a sales contract, you’ll need to document at least the following:
- A copy of the initial earnest money deposit check from your alternative source.
- Evidence that the check cleared the original account.
- The ability to show the check you write to repay the alternative source you used.
- The ability to show this check clearing your account, with a copy of a bank statement to prove the check cleared.
- An explanation letter explaining all of this mess.
Wouldn’t it be easier to be prepared, use your own checkbook, and then only provide the lender:
- A copy of the initial earnest money deposit check.
- Evidence the check cleared your account.
The bottom line is if you are looking to buy real estate, be prepared, and don’t write an earnest money deposit off of a friend’s bank account, a parent’s bank account, a cash advance on a credit card, or a business account of yours that you figure on paying back from your personal account. It creates a paperwork nightmare!