Quick Answer: What Is Earnest Money and How Much?

Earnest money is a deposit (1-3% of home price) showing you're serious about buying. It's held in escrow and credited toward your down payment at closing. You can get it back if contingencies (inspection, financing, appraisal) aren't met. On a $300,000 home, expect to deposit $3,000-$9,000.

Earnest money is typically 1-3% of purchase price
It's held in escrow, not given directly to seller
Contingencies protect your earnest money if the deal falls through
Money is credited toward down payment at closing
Never waive all contingencies unless you're prepared to lose the deposit

What Is Earnest Money?

Definition

Good faith deposit showing serious intent to buy
Held in escrow by third party (title company, attorney)
Credited at closing toward down payment/closing costs
Forfeited in some cases if you back out without cause

Purpose

Shows seller you’re serious
Compensates seller if you default without cause
Part of your overall cash to close

How Much Earnest Money?

Typical Amounts

Home Price	1%	2%	3%
$200,000	$2,000	$4,000	$6,000
$300,000	$3,000	$6,000	$9,000
$400,000	$4,000	$8,000	$12,000
$500,000	$5,000	$10,000	$15,000

Factors Affecting Amount

Local customs: Some areas have fixed percentages
Market conditions: Hot markets may require more
Competition: Higher deposit = stronger offer
Seller preference: Some specify minimum
Type of home: New construction often requires more

When Is Earnest Money Refundable?

You GET Your Money Back If:

Contingency	Scenario
Inspection	Major issues found, seller won’t repair
Appraisal	Home appraises for less than offer
Financing	You can’t get approved for loan
Sale of home	Your current home doesn’t sell (if contingency)
Title issues	Problems with property title
Time limits	Contingency deadlines pass without resolution

You LOSE Your Money If:

You back out for reasons not in contract
You miss contingency deadlines
You waive all contingencies and change mind
You can’t perform for reasons outside contract

Protecting Your Earnest Money

Include Contingencies

Your offer should include:

Inspection contingency (7-10 days typically)
Financing contingency (until loan approval)
Appraisal contingency (until appraisal complete)
Any other needed contingencies

Meet Deadlines

Deadline Type	Typical Timeframe
Inspection	7-10 days
Financing	Until closing (or shorter)
Appraisal	2-3 weeks
Review period	5-10 days

Never:

Waive inspection contingency
Wire directly to seller
Skip reviewing contract terms
Miss deadlines

Earnest Money Process

Timeline

Step	When	What Happens
1. Offer	Day 0	Submit offer with earnest money amount
2. Acceptance	Day 1-3	Seller accepts, contract is live
3. Deposit	1-3 days after acceptance	Wire/write check to escrow
4. Contingencies	Varies	Complete inspection, financing, etc.
5. Closing	Day 30-45	Money credited toward purchase

Where Does Money Go?

Escrow account at title company or attorney
NOT to seller directly
Earns interest (sometimes)
Applied at closing to your costs

What Happens at Closing?

If Deal Closes

Earnest money credited to your closing costs
Reduces amount you need to bring
Appears on Closing Disclosure

If Deal Falls Through

With contingency: Money refunded to you
Without cause: Money forfeited to seller
Dispute: May require mediation/legal action

Tips for Earnest Money

Do:

✓ Use escrow (title company/attorney)
✓ Get receipts and documentation
✓ Meet all contingency deadlines
✓ Read contract carefully
✓ Keep records of everything

Don’t:

✗ Pay cash directly to seller
✗ Waive contingencies unless prepared to lose money
✗ Miss deadlines
✗ Sign anything you don’t understand

Earnest Money Guide: How Much and What to Know