What Is an EMD Loan? Earnest Money Deposit Funding for Investors

EMD loans are built for investors, wholesalers and other business-purpose buyers who would rather keep their cash working than park it in escrow.

What is an earnest money deposit?

EMD stands for earnest money deposit, the good-faith payment a buyer puts down when going under contract to show the seller they are serious. It is also called a good faith deposit. The deposit is held by a neutral party, usually a title company, escrow agent or attorney, until closing, when it is credited to the purchase price.

How much? The contract sets the figure, and sellers on competitive or investor deals can ask for more. Our post on how much earnest money to budget goes deeper.

How does an EMD loan work?

1. You sign a purchase contract with a deposit amount and deadline.
2. You send the EMD lender the executed contract and the title company's wire instructions.
3. The lender wires the deposit directly into escrow.
4. At closing, the deposit is credited to your purchase and the EMD loan is repaid.
5. If the deal dies inside your contingency period, the refunded deposit repays the loan.

Deposits have deadlines, so speed matters. See Axelrad's EMD funding page for current timing and terms.

Who uses EMD loans?

• Wholesalers locking up a contract before their end buyer is lined up.
• Investors writing several offers who cannot fund every deposit at once. Axelrad can fund any volume of EMDs.
• Buyers competing on deposit size, where a larger deposit wins the contract.
• Land investors tying up parcels during a feasibility period. Axelrad's EMD funding covers land.
• Developers and commercial buyers securing deposits while their capital is committed elsewhere, including EMDs in the millions on large commercial portfolio deals.

You will also hear EMD loans called gator loans or gator funding. That term comes from the creative-finance community. At Axelrad, gator loans, gator funding and EMD funding are the same product.

What does an EMD loan cost?

EMD funding is usually priced as a fee for putting up the deposit, not as monthly interest. At Axelrad the fee can be flat or a percentage of the deal, and it is typically a percentage. The minimum is $500, and you see the fee for your deal before you sign anything. The fee is paid up front. Axelrad also has flexibility on fees, because we want investors to be able to get their first deals done. If this is one of your first deals, say so when you apply. There is no credit pull.

How does it compare to other ways to fund a deposit?

When does an EMD loan make sense, and when doesn't it?

It earns its fee when the deposit would lock up cash you need elsewhere, or when a bigger deposit wins the deal. It is the wrong tool when:

• The deposit goes hard on day one. Axelrad funds fully refundable deposits only.
• The contract has no inspection or due-diligence period.
• The deposit is small and your cash is sitting idle anyway.
• What you are short of is the money to close, not the deposit.

Does an EMD loan cover the purchase price?

No. It covers only the earnest money deposit. You still need a plan for the rest of the price and closing costs. On a double close, that is often transactional funding. For how the deposit fits with the down payment and closing costs, see earnest money vs. down payment.

Can you assign a contract with a funded EMD?

Yes. A funded EMD can sit on a deal you plan to assign, but the new parties must also sign for the EMD so it remains assignable. Tell us at the start that you plan to assign so the paperwork is ready before the assignment is signed.

Do you get the deposit back if the deal dies?

The contract decides whether the deposit is refundable. If the deal dies inside the contingency period and you give proper notice, the deposit typically comes back out of escrow. After a contingency expires, a deposit can go hard. See is earnest money refundable? for how contingencies and notice deadlines work.

At Axelrad, if the deal cancels inside your contingencies, nothing more is owed. The refunded deposit comes back to Axelrad, the fee was paid up front, and we do not charge a failure or non-performance fee.

Key takeaways

• An EMD loan covers the earnest money deposit on a purchase contract; it does not cover the purchase price.
• The deposit is wired to title or escrow and repaid at closing, or from the refunded deposit if the deal dies inside contingencies.
• At Axelrad, EMD funding has no credit pull and covers houses, land and commercial deals of any size.
• Pricing is an upfront fee, not monthly interest: flat or a percentage of the deal (typically a percentage), with a $500 minimum.
• If the deal cancels inside contingencies, nothing more is owed and there is no failure fee.
• Axelrad funds fully refundable deposits only. Know your contingency deadlines.

Talk to Axelrad

Have a signed contract and a refundable deposit due? Send it through Axelrad's application. Details are on our EMD funding page.