What is your agents explanation? Did you bring this to his/her attention before signing the offer? Never feel pressured into signing deals without being 100% comfortable that you understand where your money is going and the stages of the deal.

Hi Sam,
The deposits that you give at the contract to purchase and signing of the P&S are to protect the seller in the event that you back out for any reason other than one specified within the contracts ( Home inspection, Mortgage contigency etc...). Assuming that the deal will go through, the listing broker that is holding these funds will be resposible for bringing them to the closing. They will be appliied to your side of the closing in the form of a credit on the buyer's side of the HUD-1 settlement statement.

In other words if you gave 4% to be held as a deposit and you are only using 3.5% as a down payment then the other .5% will be credited to you and will lower the amount you need to bring to the table for closing costs and escrows.
Again you will review the HUD-1 statement with the closing attorney and it will show you where all of your funds were applied. I hope this helps.

I am curious to hear what your agent has to say. Your agent may not be aware that you are doing an FHA loan, and by having you put down a bigger deposit, is trying to help make your offer on the property stronger. If you are buying a foreclosure with an FHA loan, the bank can be influenced with a bigger deposit when looking at similar offers. I think you need to communicate with your agent regarding this. I encourage an open line of communication with my clients so they are always aware of what is happening every step of our transaction and know they can ask me anything.

Good luck and congratulations,

Jeremy Lehman
Century 21 Beachside
Jeremy@LehmanHomes.net