Earnest Money
What Is Earnest Money?
Earnest money is a deposit made by a buyer to demonstrate serious intent to purchase a home.
It is submitted after signing the purchase agreement and held in escrow until closing.
Earnest money shows commitment and provides the seller with financial assurance.
Why It Matters in a Mortgage
Earnest money:
- Strengthens the buyer’s offer
- Applies toward down payment or closing costs
- Is governed by contract contingencies
If the buyer withdraws without valid contractual reason, the seller may retain the deposit.
Lenders consider the purchase agreement and earnest money as part of transaction documentation.
How It Works
- Buyer submits deposit (often 1–3% of purchase price).
- Funds are held in escrow.
- At closing, deposit is credited toward buyer’s costs.
If contingencies are met, funds are protected.
Earnest Money vs. Down Payment
Earnest Money → Good-faith deposit
Down Payment → Equity contribution
Earnest money is typically applied toward the down payment.
FAQs About Earnest Money
Is earnest money refundable?
It depends on contract contingencies and deadlines.
Who holds the deposit?
Typically a title company or escrow agent.
What happens if the deal falls through?
Refund depends on contract terms.
Related Terms
