Last Updated June 2026

Earnest money is a deposit a homebuyer makes after an offer is accepted to show they’re serious about purchasing a home. The money is typically held in an escrow account and later applied to closing costs or a down payment.

Understanding earnest money

Earnest money, sometimes called a good faith deposit, is a payment made early in a real estate transaction to show a buyer’s commitment to purchasing a property. Understanding how earnest money works — including when it may be refundable — can help you make informed decisions as you move through the homebuying process. If you’re early in the journey, learn more about preparing to buy a first home.

Why do buyers pay earnest money?

Earnest money helps reassure the seller that the buyer intends to follow through with the purchase. In competitive markets, including earnest money can make an offer more attractive to the seller.

Key terms to know

• Escrow account. A secure account where funds are held by a neutral third party
• Purchase agreement. The contract outlining terms of a sale
• Contingencies. Conditions that must be met for the sale to proceed (such as financing or inspection)

How much earnest money should you offer?

Earnest money deposits often range from 1% to 3% of the home’s purchase price, though amounts can vary depending on the market and location.

What affects how much earnest money you offer?

Local real estate market conditions In competitive markets, buyers may offer higher deposits to strengthen their offer. In slower markets, lower deposits may be more common.

Purchase price of the home Higher-priced homes often come with larger earnest money deposits because the amount is typically based on a percentage of the purchase price.

Seller expectations and competing offers If a seller receives multiple offers, they may favor a buyer who includes a higher earnest money deposit because it can signal a stronger commitment to completing the purchase.

How do you pay earnest money?

Earnest money is commonly paid by:

• Personal check
• Wire transfer
• Certified or cashier’s check

When is earnest money due and who holds it?

Payment is usually due shortly after the seller accepts your offer — often within a few days, depending on the purchase agreement. If you’re new to the process, read more first-time home buying tips to help you better understand each step.

A neutral third party — such as an escrow company, title company or real estate brokerage — typically holds the deposit until the transaction is complete.

What happens to earnest money at closing?

At closing, earnest money is generally applied toward your total home purchase costs, such as your down payment or closing costs. If you’ve already deposited earnest money, that amount may reduce the cash you need to bring to closing.

Is earnest money refundable?

Whether earnest money is refundable depends on the terms of the purchase agreement.

When earnest money may be refundable

Earnest money is often refundable if certain contingencies outlined in the contract are not met. According to the National Association of Realtors (NAR), these may include:

• Financing contingency (unable to secure a loan)
• Inspection contingency (issues found during a home inspection)
• Appraisal contingency (home appraises for less than the purchase price)

When you could lose earnest money

A buyer may risk forfeiting earnest money if they back out of the agreement for reasons not covered by the contract. For example:

• If the appraisal comes in low: The buyer may not be able to cancel the contract and recover earnest money if an appraisal contingency is not included.
• If the buyer changes their mind: The seller may keep the earnest money if no contingency applies.

Earnest money vs. down payment: what’s the difference?

Although both involve upfront money, they serve different purposes.

• Earnest money: A deposit made early to show serious intent to buy
• Down payment: A larger payment made at closing toward the purchase price

Earnest money is typically credited toward the down payment or closing costs once the sale is finalized.

If you’re preparing to buy a home, it may be a good time to explore your homeowners insurance options to help protect your investment after closing. If you have questions about how earnest money fits into your home purchase, consider speaking with a real estate professional who can guide you based on your situation.

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