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Buying & closing

Earnest Money

Also called good faith deposit, EMD, earnest money deposit

In short

Earnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.

Typical amount
1% to 3% of the price
Who holds it
Escrow or title company
When it's due
Within days of acceptance
At closing
Credited to the buyer

How earnest money works

Once a seller accepts your offer, you deliver the deposit, usually by wire or cashier's check, to a neutral third party such as a title company, escrow agent or attorney. The money sits there until closing.

At closing it is applied to your down payment or closing costs. It is not an extra fee on top of the purchase price.

When you can lose it

The purchase contract decides who keeps the deposit if the deal falls apart. If you back out for a reason covered by a contingency, such as a failed inspection or financing, you normally get it back. If you walk away for a reason the contract doesn't allow, or miss a deadline, the seller may be entitled to keep it.

Earnest money on distressed properties

Bank-owned (REO) sellers often set their own deposit rules in a bank addendum, and some require larger deposits or certified funds within 24 to 48 hours. At a foreclosure auction, the deposit works differently: many states require a nonrefundable cash deposit or the full bid on the day of sale.

Example

A 2% deposit on a $300,000 home

A buyer offers $300,000 and the contract calls for 2% earnest money, so they wire $6,000 to the title company. At closing, the $6,000 is credited against the $30,000 down payment, so they bring $24,000 plus closing costs. If the inspection had turned up a failing roof and they cancelled within the inspection period, the $6,000 would have been returned.

Earnest Money vs. Down Payment

Earnest Money

Earnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.

Down Payment

A down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

The differenceEarnest money is a smaller deposit paid when the offer is accepted to secure the deal; the down payment is the full upfront equity paid at closing. Earnest money is usually credited toward the down payment.

Frequently Asked Questions

Related terms

EscrowBuying & closingEscrow is an arrangement where a neutral third party holds money or documents until the conditions of a deal are met. The term also refers to the account a lender uses to pay a borrower's property taxes and insurance.ContingencyBuying & closingA contingency is a condition in a purchase contract that must be met for the sale to go through. If it isn't met by its deadline, the buyer can usually cancel and keep their earnest money.Closing CostsBuying & closingClosing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.As-Is SaleBuying & closingAn as-is sale means the seller will not make repairs or offer credits for the property's condition. The buyer accepts the home in its current state, though inspection rights and required disclosures may still apply.AppraisalBuying & closingAn appraisal is a licensed appraiser's independent estimate of a property's market value. Lenders require one to make sure the home is worth at least the amount being borrowed.

Learn more in the knowledge base

How to Make an Offer on a House and NegotiateGuide · 8 min readAn offer is more than a price. The deposit, contingencies, timeline and requests you include all shape whether the seller says yes and how protected you are afterwards. This guide explains each term and how negotiation usually unfolds.Documenting Your Funds: Pre-Approval Letters, Proof of Funds and Lender LettersGuide · 7 min readSellers want evidence that you can pay before they accept your offer, and many bank and auction sellers require it. The right document depends on how you are paying. This guide matches documents to purchase types, explains what makes each one credible and shows how to share financial statements without exposing more than you need to.The Home Buying Process, Step by StepGuide · 5 min readBuying a home follows a predictable sequence, even though every transaction has its own wrinkles. This guide walks through each step in order, explains what you decide at each one and points to the detailed guide for every stage.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.