Personal Home- Earnest Money Conundrum

[Garrett Crain]

Hello all,

I am looking for some advice.

My wife and I are in the process of purchasing an off market property for our personal home. We are getting a good deal, but it needs A LOT of work. It is everything we want now and for the future.

We have been pre approved for the loan we need. We will have to put 10% down to hold in a CD during the rehab process. The loan will cover purchase price and rehab costs. It is a 12 month loan with interest only payments. We are going to do as much of the work ourselves that we can to save on labor costs. Once rehab is completed, the loan will be converted into a mortgage.

The seller is asking for $10,000 in earnest money for signing. Which is fine, but he wants it given to him and not the title company. I have several problems with that.

1) I am not comfortable giving the earnest money to anyone except the title company. I am very familiar with earnest money but have never given to the individual. Am I out of line or has anyone done this?

2) The earnest money was going to be applied towards the 10% that goes to the CD. If this $10,000 is given to the seller, it now increases how much we will have to put down by another 25%. I know earnest is taken from purchase price but in this case it would go to seller and not the bank. Therefore, we have already put $10,000 down but will have to give 10% of the loan amount to the bank.

My thoughts are to tell him I am not comfortable with giving the check to anyone but the title company. What are some of your thoughts? Has anyone given earnest money to the seller directly without any title work being completed?