Fannie Mae requires a 10% earnest deposit on cash deal
I was talking to a friend of mine about a condo she is purchasing out of state and was quite surprised when she told me the details of the transaction and what she was required to do in order to get her purchase contract accepted. Here is the scenario…she found a bank owned condo that was listed for $45,000 (remember, this condo is not in AZ!). She made an cash offer of $43,500 with a $1000 earnest deposit. She received a counter offer from the bank for a purchase price of $44,000 and was told that Fannie Mae requires a 10% earnest deposit on cash offers! As a realtor, I was not aware of this policy/guideline. After she made a few calls to Fannie Mae, it was confirmed that this is their policy, that it is not a new policy, this is just the way it is. We are talking about $4500 on this particular deal, not a HUGE amount of money but a substantial amount compared to the $1000 originally offered.
I have to admit it got me thinking and my thoughts wandered (as they often do) to the bank (sellers) perspective: Perhaps it gives them some reassurance that you are serious about buying. Maybe they feel it would be a lot easier to walk away from lets say $1000 than 10% of a purchase price. Sounds to me like they want to be sure you have the cash on hand but shouldn’t a guarantee of funds be sufficient?
Then I looked at it from a buyers perspective: 10% can be a substanial amount of money to show good faith or “earnest”. Note to cash buyers looking at Fannie Mae owned homes, be prepared to ”show them the $$!”
It seems the general concensus is ”there are plenty of bank owned homes out there”…”the banks are going to give them away in order to get them off their books”. Guess the banks are not as anxious to rid themselves of these homes as originally assumed?
Real Estate is still the best investment you can get, land properties always increase in price as time goes by."`- 
i had a bad credit score last year but i was able to fix it now..:" 
I figured it out. The make the inspection period start the day they send you an email saying they will ...
i am not a fan of having credits and getting credits cards.;," 
Comment by Jennifer on 16 January 2009:
Great post! I think one of the biggest issues is that Fannie Mae is pushing away potential cash buyers who, even after providing proof of funds, might look elsewhere knowing it’s required to give 10% earnest money. Who would risk losing $20K on a $200K (or 10% on any priced) house knowing how contradictory and difficult the bank adddendums can be! If this type of regulation becomes the norm, the market will certainly take substantially longer to recover, punishing cash buyers who are willing to buy up some bank owned properties will only hurt them in the end!
Comment by Heather Barr on 16 January 2009:
I hadn’t been aware of this either until you brought it up. Perhaps the banks are just trying to make sure the buyer is “liquid”. I’ve often wondered about that myself, as I send off a buyer client’s proof of funds…. I’ve thought, “Well, they could have spent that money by now, the document is 15 or 20 days old.” Who knows.
What’s crazier is that Fannie would counter (and risk losing the buyer) over $500!
Comment by peter collins on 23 January 2009:
Have you heard anything on how Fannie Mae is handling Loan Modification ?
Comment by Robert Worthington on 26 September 2009:
Fannie does not have to answer to anyone. The people making the decisions are only trying to do their jobs. My opinion is, nobody working at Fannie, owns the company! So it’s not there money and they don’t care as much as an owner would about negotiating to get out of a troubled situation.
Comment by CJ Nelson on 5 October 2009:
10% Earnest money for cash Buyers. Another example of great decision making at FNMA! With the number of bank owned homes available in the Atlanta market why would Fannie make it more difficult for a person with CASH to purchase one of their properties? If you need a loan and find a lender who says “Sure I can get you a loan,” you can offer $1,000 or less in earnest money, drag your closing date out months and IF the sky falls you loose essentially nothing. But someone with real money, no need to wait on lending or appraisal and capable of closing in a matter of days, has to take greater risk than someone who may or may not even be capable of purchasing the property.
Remember, Earnest Money is a device intended, among other things, to show the Seller the Buyer’s sincerity in their desire to purchase a home and provide the Seller a reasonable amount of security that the Purchaser will fulfill the terms of the contract and close the sale. In this market, where homes are sitting unsold for months and sometimes years, please tell me what risk FNMA has? Are they so swamped with offers they may loose a better deal? The Buyer on the other hand has to sign an addendum greatly limiting their contractual rights (at least under the Georgia Purchase and Sale Agreement) to terminate the deal without forfeiture of their Earnest money.
If you are considering purchasing a FNMA owned home with cash, the risk needs to be worth the reward. Do your best to evaluate the true current market value of the property you’re interested in make sure it’s the best deal you can find. Otherwise there are still plenty of fish in the sea.
Comment by Real Estate IRA(new comment) on 31 January 2010:
Another great decision by FNMA? With so many available properties on the market, why would they want to make it more difficult for buyers. Guess that’s the gov’t for you.
Comment by Figured it out(new comment) on 20 June 2010:
I figured it out. The make the inspection period start the day they send you an email saying they will accept the offer. By the time you get the fully executed contract, you are already 5 days into the inspection. We got email counter on 3rd and got email offer accept on 4th and they are using 3rd as inspection period start. We got contract on 9th and cancelled on 15th. They said they were keeping earnest. The also counter for 14500 on a 11400 list/offer. Maybe Fannie stock will go up when they announce this quarters earnings. The agent who informed me they were keeping it said everyone is shocked and complaining. We are going through with the process cause it doesn’t make sense to leave 14500 go. Fannie will either collect ALOT of earnest or show a serious increase of sales….Hmmmm?