What Is Earnest Money? How Much, Where It Goes and How to Protect It

When a seller accepts your offer, you usually put down a deposit to show you are serious. That deposit is earnest money. Handle it right and it becomes part of your down payment. Handle it wrong and you can lose it.

How much is earnest money?

It is often about 1% to 3% of the price, but it depends on your market and your offer. In a hot market, a bigger deposit can make your offer stand out. Your agent will tell you what is normal where you are buying.

Who holds it?

You do not hand it to the seller. It goes to a neutral third party, usually the title or escrow company, an attorney or a broker's trust account. It sits there until closing.

What happens at closing?

Your earnest money is credited to you. It counts toward your down payment and closing costs, so it is not an extra fee.

When do you get it back?

Most contracts protect you with contingencies. If you cancel for a reason the contract allows, and you do it on time, you usually get your deposit back. Common ones:

• Inspection: you can back out if the inspection finds problems. What inspectors check.
• Financing: you can back out if your loan falls through.
• Appraisal: you can renegotiate or back out if the home appraises low.

When can you lose it?

• You back out for a reason the contract does not allow.
• You miss a deadline, like the end of your inspection period.
• You waive a contingency and then can't close.

Three rules to protect it

1. Know every deadline. Put them in your calendar the day your offer is accepted.
2. Deliver it on time. Late earnest money can put your contract at risk.
3. Never trust wiring instructions from an email alone. Call the title company at a number you know is real before you send money. Scammers fake these emails.

Quick answers

Is earnest money the same as a down payment?

No. Earnest money is a deposit made when your offer is accepted. At closing it is credited toward your down payment and closing costs.

Can the seller keep my earnest money?

Only if you back out for a reason the contract does not allow or miss a deadline. Contingencies protect you. See the inspection checklist and buyer agreements.

When is earnest money due?

Usually within a few days of the accepted offer; your contract sets the deadline. See the buying timeline.

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