Earnest Money
Earnest money is a good-faith deposit a buyer submits with their purchase offer to show the seller they are serious. Typically 1–3% of the purchase price, it is held in escrow and applied toward the down payment or closing costs at settlement. If the buyer backs out without a valid contingency, the seller may keep the earnest money.
On a $450,000 home, earnest money of 1–3% is $4,500–$13,500. In competitive markets, buyers sometimes offer 3–5% or higher to make their offer stand out. The deposit is held by a neutral third party — usually an escrow or title company — until closing.
Contingencies in the purchase contract protect your earnest money. Common contingencies include financing (if you can't get approved, you get your money back), inspection (if the inspection reveals major issues, you can exit), and appraisal (if the home appraises below the purchase price). Waiving these contingencies strengthens your offer in competitive bidding but puts your earnest money at risk.
Earnest money differs from a down payment: earnest money is paid when you make the offer; the down payment is paid at closing. However, earnest money counts toward your down payment, so it's not an additional cost — just an early payment.
Key Takeaway
Earnest money is a good-faith deposit a buyer submits with their purchase offer to show the seller they are serious. Typically 1–3% of the purchase price, it is held in escrow and applied toward the down payment or closing costs at settlement. If the buyer backs out without a valid contingency, the seller may keep the earnest money.
Related Terms
Frequently Asked Questions
It depends on why. If you back out due to a valid contingency (financing, inspection, appraisal), you typically get it back. If you back out without a valid reason, the seller may keep it.
Typically 1–3% of the purchase price in most markets. In highly competitive markets, offering 3–5% can make your offer more attractive to sellers.
Usually within 1–3 business days of the seller accepting your offer. The exact deadline is specified in your purchase contract.
Compare Mortgage Rates Today
Now that you know what earnest money means, see how it affects your bottom line.
See Rates →