Credible
Get Rates
  • Refinance Student Loans
    • Compare Options
      • Best Refinancing Companies
      • Lender Reviews
      • Refinance Student Loans
      • Student Loan Consolidation
    • Learn the Basics
      • Fixed vs. Variable Rates
      • Forgiveness Programs
      • Consolidation vs Refinancing
      • Repayment Plans
      • More on Student Refi
    • How to
      • Consolidate Your Student Loans
      • Pay Off Your Student Loans
      • Lower Your Interest Rate
    • Tools
      • Current Student Loan Refi Rates
      • Refinancing Calculator
      • Repayment Calculator
  • Student Loans
    • Compare Options
      • Best Private Student Loans
      • Lender Reviews
      • Private Student Loans
      • Parent Student Loans
    • Learn the Basics
      • Student Loan Limits
      • Living Expenses
      • Applying for FAFSA
      • Federal Student Loans
      • Student Loan Interest Rates
      • More on Student Loans
    • How To
      • Pay for College
      • Take Out Student Loans
      • Apply Without Cosigner
      • Apply for Student Loans
      • Pay for Grad School
    • Tools
      • Current Student Loan Rates
      • Student Loan Interest Calculator: Estimate Payments
  • Personal Loans
    • Compare Options
      • Best Personal Loan Lenders
      • Lender Reviews
      • Get Personal Loan Rates
    • Learn the Basics
      • How to Qualify
      • How to Get a Loan
      • Where to Get a Loan
      • Personal Loans with Cosigner
      • Pay Off Credit Card Debt
      • More on Personal Loans
    • Best for
      • Credit Card Consolidation
      • Debt Consolidation Loans
      • Home Improvement Loans
      • Good Credit
      • Fair Credit
      • Bad Credit
    • Tools
      • Current Personal Loan Rates
      • Personal Loan Calculator
  • Mortgages
    • Compare Options
      • Mortgage Refinance
      • Home Loan
      • Mortgage Preapproval
      • Mortgage Payment Calculator
    • Compare Rates
      • Mortgage Refinance Rates
      • 30-Year Fixed Refinance Rates
      • 15-Year Fixed Refinance Rates
      • Home Loan Rates
      • 15-Year Fixed Mortgage Rates
      • 30-Year Fixed Mortgage Rates
    • Learn the Basics
      • How to Buy a House
      • How to Refinance Your Mortgage
      • How to Get the Best Rate
      • Cash-Out Refinancing
      • More on Home Loans and Refi
    • Pay Off Mortgage
      • Home Equity to Pay Off Debt
      • Paying Off Mortgage Early
      • Mortgage Refinance Cost
  • Company
    • About
    • Reviews
    • Blog
    • Lenders
    • Editorial Guidelines
    • FAQs
    • Press
  • Find My Rate
Advertiser Disclosure

How Earnest Money Works — And How Much You’ll Need

Putting down earnest money with your home purchase offer is standard practice and shows the seller that you’re a serious buyer.

Amy Fontinelle Amy Fontinelle Updated February 4, 2021

image of money and dollar signs

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

Earnest money is a deposit you make to show that you’re serious about buying a home.

To protect your earnest money deposit, you’ll want to include certain contingencies in your purchase agreement — such as contingencies for financing and a home inspection.

Once the purchase agreement has been signed, the seller’s real estate agent will place the earnest money in an escrow account until closing.

Here’s what else you need to know about earnest money:

  • What is earnest money?
  • How much earnest money to put down
  • What happens to your earnest money deposit
  • How contingencies protect your earnest money

What is earnest money?

Pledging earnest money with your purchase offer is not a legal requirement to buy a home, but it is standard practice. It shows the seller that you intend to go through with the purchase as long as there’s nothing seriously wrong with the house.

Without an earnest money deposit, buyers could easily make offers on multiple properties since they’d have nothing to lose by backing out of the deal.

But this would put a lot of sellers in a tough position, and the real estate market wouldn’t function as smoothly.

Know the difference: Earnest money is not the same thing as a down payment. Both give you skin in the game, but earnest money shows the seller that you’re serious about the purchase, whereas a down payment shows the lender you’re serious about the purchase.

That said, you can usually apply your earnest money deposit toward your down payment, so you don’t have to worry about saving up enough money for both.

Finding a great mortgage rate can help save you thousands of dollars over the course of your loan. With Credible, you can compare all of our partner lenders and see prequalified rates in as little as three minutes.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

Trustpilot

How much earnest money to put down

A typical earnest money deposit is 1% to 5% of the purchase price. For new construction, the seller might ask for 10%.

So, if you’re looking to purchase a $250,000 home, you can expect to put down anywhere from $2,500 to $25,000 in earnest money.

Several factors affect how much earnest money you’ll need to deposit:

  • Demand: In a strong seller’s market, a large earnest money deposit can help make your offer stand out.
  • Local customs: Ask your real estate agent what a typical earnest money deposit is in your area.
  • What the seller will accept: If the seller doesn’t think your earnest money deposit is high enough to show you’re serious, they might not accept your offer. Consider what amount of good faith money would convince them to stop accepting offers from other buyers.

Learn More: How to Get a Mortgage (Home Loan)

What happens to your earnest money deposit

The seller’s real estate broker or agent will deposit your money into an escrow account. This means that neither you nor the seller can touch the money until certain conditions are met, which are spelled out in the purchase agreement.

Placing the money in escrow ensures that the seller gets the money if the buyer doesn’t hold up their end of the contract, and vice versa.

If the sale goes smoothly

If the home sale proceeds as expected, your earnest money deposit will help cover your down payment and closing costs.

If the sale falls through

A sale could fall through for many reasons. In some cases, you can lose your earnest money deposit:

  • You get cold feet. If you decide to walk away from the home — whether it’s because you’ve found something better, decided it wasn’t a right fit, or had a sudden change in circumstances (e.g., you lost your job or came down with an illness) — the seller is entitled to keep your deposit.
  • You provide a nonrefundable deposit. In a highly competitive market, you might offer a nonrefundable earnest money deposit to strengthen your offer — a major risk if you don’t have money to burn.
  • A problem arises after a contingency deadline. To protect yourself, you’ll want to include contingencies in the sales contract that give you time to order an inspection, get a home appraisal, and secure your financing. You’ll waive each contingency after the deadline passes — and you won’t be entitled to an earnest money refund then.

How contingencies protect your earnest money

It’s common to include up to five standard loan contingencies in your purchase agreement. Each of these will give you the opportunity to get your earnest money back:

  • Home inspection: If the home inspection reveals a major defect, you’ll have the freedom to walk away without losing your earnest money. Just make sure you complete the inspection before the contingency deadline.
  • Home appraisal: You might want to move on if the home appraisal comes in significantly lower than the purchase price. In fact, unless the seller lowers the price, you might have to move on because lenders won’t approve you for a home loan if the appraisal comes in low.
  • Clear title: This contingency, like the appraisal, is connected to the financing contingency. You must purchase a lender’s title insurance policy to protect the lender against competing ownership claims to the home. If the title company you hire finds a problem it can’t easily resolve, a title contingency allows you to exit the agreement without losing your earnest money.
  • Mortgage financing: It’s smart to get preapproved for a mortgage before making an offer so you don’t waste your time or the seller’s. Still, final approval will depend on the property being in good shape, having a clear title, and appraising at or above the purchase price.
  • Home sale: If you need to sell your current home before you can buy a new home, your offer might include this contingency. However, the seller might not accept an offer with this contingency. It puts them in a bad position: They’ll have to wait for you to sell the home and might have to pass on other offers in the meantime. Consider a bridge loan to avoid this problem.

Credible can be a big help when trying to find a great interest rate. You can easily compare our partner lenders and see prequalified rates in as little as three minutes — all without leaving our platform.

About the author
Amy Fontinelle
Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

Read More

Home » All » Mortgages » How Earnest Money Works — And How Much You’ll Need

Home Loans 101


  • What Is a Mortgage
  • How Mortgage Rates Work
  • Amortization Explained
  • Mortgage APR
  • What Is Home Equity
  • What Is a Lien
  • Understanding Mortgage Points
  • Private Mortgage Insurance

Homebuying 101

  • How to Buy a House
  • What Is Earnest Money
  • What Is Escrow
  • Loan Estimate & Closing Disclosure
  • Loan Contingencies
  • What Does a Title Company Do

Tools and Resources

  • Get a Home Loan
  • Get Preapproved for a Mortgage
  • Pay Off Your Mortgage Early
  • Calculator: Mortgage Repayment
  • Today’s Mortgage Rates
  • Lender Reviews

  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Twitter (Opens in new window)

Related Articles

Mortgages

What Is Escrow and How Does It Work?

Mortgages

Loan Contingencies: What They Are and How to Use Them

Mortgages

How to Make an Offer on a House

  • Read More
    • Refi Student Loans
    • In School Loans
    • Personal Loans
    • Mortgages
  • Resources
    • Lender Reviews
    • Loan Calculators
    • Data Insights
    • Debt Statistics
    • Sitemap
  • Compare
    • Student Loan Refinance
      • Current Student Loan Refi Rates
    • Student Loan Consolidation
    • Private Student Loans
      • Current Student Loan Rates
    • Personal Loans
      • Current Personal Loan Rates
    • Refinance Mortgage
      • Mortgage Refinance Rates
        • 15-Year Fixed Refinance Rates
        • 30-Year Fixed Refinance Rates
    • Home Loans
      • Home Loan Rates
        • 15-Year Fixed Mortgage Rates
        • 30-Year Fixed Mortgage Rates
  • Top Lenders
    • Best Student Loan Refi Companies
    • Best Private Student Loans
    • Best Personal Loans
  • Company
    • About
    • Reviews
    • Blog
    • Editorial Staff
    • Editorial Guidelines
    • News
    • Press
  • Legal
    • Terms of Use
    • Privacy Policy

© 2021 Credible


Credible Operations, Inc. NMLS ID# 1681276 | NMLS Consumer Access | Licenses and Disclosures
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.