Earnest Money

Earnest money is the cash you put down to prove you’re serious about buying a home — think of it as a good-faith deposit that tells the seller you’re not just window shopping.

When you make an offer on a house, the seller wants proof you mean it. Earnest money does that. You write a check (or wire funds) within a few days of your offer being accepted, and that money goes into an escrow account until closing.

On a $350,000 home, earnest money typically runs $3,500–$7,000 (1%–2% of the purchase price). In competitive markets like Austin or Denver, sellers sometimes expect 3% or more.

Where Does the Money Go?

Your earnest money doesn’t disappear. At closing, it gets applied to your closing costs or down payment. It’s money you were going to spend anyway — you’re just putting it up early to secure the deal.

The funds sit in a neutral escrow account managed by a title company, real estate attorney, or broker. Neither you nor the seller can touch it until the deal closes or falls apart.

When Do You Lose Earnest Money?

Here’s where it gets real. You can lose your deposit if you back out of the deal without a valid reason. Valid reasons are spelled out in your contract’s contingencies:

• Home inspection reveals major problems
• Your financing falls through
• The appraisal comes in too low
• Title issues surface during the title search

Back out for any reason NOT covered by a contingency, and the seller keeps your money. On a $350K home, that’s $3,500–$7,000 gone.

How Much Is Enough?

There’s no legal minimum. But too little signals weakness. A $500 deposit on a $400K home? The seller won’t take you seriously. Too much ties up cash you might need elsewhere. The sweet spot for most markets:

• Buyer’s market: 1% of purchase price
• Balanced market: 1%–2%
• Seller’s market: 2%–3% (sometimes higher)

Your buyer’s agent will know the local norms.

Is earnest money the same as a down payment?

No, but they’re related. Earnest money is a deposit made when your offer is accepted — it shows commitment. Your down payment is the larger sum due at closing. The earnest money gets credited toward your down payment or closing costs, so you’re not paying extra. Think of earnest money as an advance on what you already owe. Use our affordability calculator to figure out your total upfront costs before making an offer.

Real-World Example

You offer $395,000 on a home and include $8,000 (about 2%) in earnest money. The deposit is held in an escrow account managed by the title company. After your inspection reveals no major issues and the appraisal comes in at value, you proceed to closing. Your $8,000 earnest money is credited toward your down payment and closing costs. If you had backed out without invoking a contingency, the seller could have kept the full $8,000. In competitive markets, buyers sometimes offer 3-5% earnest money to signal seriousness and strengthen their position against competing offers.

Related Terms

Understanding earnest money connects to several other concepts: Contingency, Due Diligence, Escrow, and Down Payment. Each of these terms interacts with earnest money in ways that affect your buying power, monthly costs, or investment returns.

Frequently Asked Questions

How much earnest money should I offer?

Typically 1-3% of the purchase price, though amounts vary by market. In highly competitive areas, 3-5% is common. In slower markets, 1% or even a flat $1,000-$2,000 may suffice. Your agent can advise on the local norm. More earnest money signals a stronger commitment to the seller.

When do I get my earnest money back?

You get it back if you cancel within a valid contingency period (inspection, appraisal, financing). If you cancel outside contingency protections or after all contingencies are waived, you typically lose it. The escrow agent will not release the deposit without written agreement from both parties or a court order.