What Is Earnest Money? How Much to Pay and How to Get It Back
You found the house, your offer was accepted, and now your agent says you need to send earnest money in the next few days. For a lot of first-time buyers, this is the first time real money changes hands, and it is natural to wonder where it goes and whether you could lose it.
Here is what earnest money is, how much you usually need, who holds it, when you can get it back, and the questions buyers ask most about it on Reddit and real estate forums.
Quick answer: Earnest money is a good-faith deposit a homebuyer makes after the seller accepts their offer. It shows the seller you are serious. It usually equals about 1 to 3 percent of the purchase price and is held by a neutral third party like a title company, escrow agent or attorney. At closing, it is credited toward your down payment or closing costs. If the deal falls apart for a reason covered by your contract’s contingencies, you generally get it back.
How Earnest Money Works
- You make an offer that states the earnest money amount.
- The seller accepts and the home goes under contract.
- You pay the deposit to the escrow or title company, usually within a few days.
- The money stays in escrow while inspections, appraisal and financing are completed.
- At closing, the deposit is applied to your costs.
As Experian notes, the escrow agent holds the deposit and coordinates the closing so neither buyer nor seller can grab it on their own.
How Much Earnest Money Should You Put Down?
According to Redfin, earnest money is usually about 1 to 3 percent of the sale price. On a $400,000 home, that is roughly $4,000 to $12,000. In competitive markets, a larger deposit can help your offer stand out. In slower markets, sellers may accept less. Some areas use a flat amount by local custom, so ask your agent what is normal where you are buying.
| Home price | 1 percent | 2 percent | 3 percent |
|---|---|---|---|
| $250,000 | $2,500 | $5,000 | $7,500 |
| $400,000 | $4,000 | $8,000 | $12,000 |
| $600,000 | $6,000 | $12,000 | $18,000 |
Earnest Money vs. Down Payment
Earnest money is a smaller deposit made early in the process. Your down payment is the larger amount you pay at closing toward the price of the home. The earnest money usually counts toward the down payment or closing costs, so it is not an extra cost on top.
Can You Get Earnest Money Back?
Usually, yes, if the deal falls through for a reason your contract allows. Common contingencies that protect your deposit include:
- Inspection contingency: The inspection reveals problems and you back out within the deadline.
- Appraisal contingency: The home appraises for less than the price.
- Financing contingency: Your mortgage is denied.
- Home sale contingency: You need to sell your current home first.
- Title issues: Problems like liens or ownership disputes come up.
- Seller breach: The seller fails to meet the contract terms.
When Could You Lose Earnest Money?
- You back out for a reason not covered by a contingency, like simply changing your mind.
- You miss a contract deadline, such as the inspection or financing deadline.
- You waived contingencies to make your offer stronger and then cannot close.
Redfin advises reading every deadline in your contract carefully and tracking them with your agent. Most lost deposits come from missed dates, not bad luck.
How to Pay Earnest Money Safely
- Pay only to a licensed escrow company, title company or attorney, never directly to the seller.
- Use the method your contract allows: wire transfer, cashier’s check or sometimes a personal check.
- Before wiring, call the title company at a phone number you found yourself to confirm the instructions. Wire fraud scams often send fake instructions by email.
- Get a written receipt.
If you think you have been targeted by wire fraud, contact your bank right away and report it to the FBI’s Internet Crime Complaint Center.
Want to understand the rest of the process? Read what escrow is and how your escrow account works after you buy.
Frequently Asked Questions
Is earnest money required?
It is not legally required, but it is expected in most home sales. Offers without it are much less attractive to sellers.
When do I pay earnest money?
Usually within one to three business days after the seller accepts your offer, depending on your contract.
Does earnest money go toward the down payment?
Yes. It is credited at closing toward your down payment or closing costs.
What happens to earnest money if the seller backs out?
If the seller breaches the contract, the deposit is typically returned to you.
Can I use gift money for earnest money?
Often yes, but lenders may require a gift letter and documentation. Ask your lender before you pay.
The Bottom Line
Earnest money is a good-faith deposit, usually 1 to 3 percent of the price, that shows a seller you mean business. It is held in escrow, applied at closing, and generally refundable if a contract contingency lets you walk away. Know your deadlines, pay only to a trusted escrow holder, and verify wiring instructions by phone.
This article is for general information only and is not legal or financial advice. Earnest money rules depend on your contract and state law. Talk to your real estate agent or attorney about your situation.
