What Is Earnest Money?

Earnest money is a deposit you submit with your purchase offer to show the seller you are serious about buying the home. It typically ranges from 1% to 3% of the purchase price and is held in an escrow account until closing. Your earnest money is credited toward your down payment or closing costs at settlement.

For example, on a $400,000 home, you would likely deposit $4,000–$12,000 in earnest money. If the deal closes, that amount reduces what you owe at closing. If you back out for a reason not covered by your contract contingencies—such as inspection, appraisal, or financing—you risk forfeiting the deposit to the seller.

Key Facts

• Typical amount: 1%–3% of the purchase price, though competitive markets may push higher
• Held by: A neutral third party such as a title company or escrow agent
• Applied at closing: Credited toward your down payment or closing costs
• Refund conditions: Returned if you cancel within contingency periods outlined in the contract
• Forfeiture risk: You may lose the deposit if you breach the purchase agreement

Frequently Asked Questions

Is earnest money the same as a down payment?

No. Earnest money is a deposit made when you submit an offer, while the down payment is the larger sum due at closing. Your earnest money is typically applied toward the down payment, reducing the amount you bring to closing.

Can I get my earnest money back?

Yes, if you cancel within your contract’s contingency periods—such as inspection, appraisal, or financing contingencies. If you back out without a valid contingency, the seller may keep your deposit.

How much earnest money should I offer?

In most markets, 1%–3% of the purchase price is standard. In a competitive seller’s market, offering more can strengthen your offer. On a $350,000 home, that means $3,500–$10,500.