The process

Earnest money, explained

Educational guide · Updated 2026

Earnest money is a deposit you include with your offer to show the seller you're serious. It's sometimes called a "good faith deposit." If your offer is accepted, the money is held by a neutral third party until closing.

How it works in practice

You make an offer on a $400,000 home. Your agent recommends 1% earnest money — $4,000 — due within 3 days of offer acceptance. That $4,000 goes into escrow, held by a title company. At closing, it applies toward your down payment or closing costs. If you back out without a valid contingency, you lose it. If the seller backs out, you typically get it back plus potentially more.

How much is typical

Earnest money commonly runs about 1–3% of the purchase price, though it varies by market. In competitive markets, a larger deposit can make an offer stand out; in slower markets, a smaller one may be fine. Your agent can advise on what's customary locally.

Where the money goes

The deposit doesn't go to the seller directly. It's held in escrow — by a title company, brokerage, or attorney depending on the state — and at closing it's typically applied toward your down payment or closing costs. So in most cases it's not an extra cost, just money paid earlier.

When you get it back — and when you don't

This is where contingencies matter. If your contract includes financing, inspection, or appraisal contingencies and you back out for one of those covered reasons within the agreed timeframe, you generally get your earnest money back. If you walk away for a reason not protected by a contingency — or miss the contingency deadlines — you may forfeit the deposit to the seller. Read these terms carefully before signing.

Frequently asked questions

Is earnest money the same as a down payment?

No. Earnest money is a good-faith deposit made when the offer is accepted. The down payment is the larger amount paid at closing. Earnest money typically applies toward the down payment at closing.

What contingencies protect my earnest money?

Inspection contingencies let you back out if the home has issues. Financing contingencies protect you if your loan falls through. Appraisal contingencies cover you if the home appraises below the purchase price.

How much earnest money is typical?

Typically 1–3% of the purchase price in most markets. In competitive markets, buyers sometimes offer more to strengthen their offer.

This article is educational and general in nature. Specifics vary by lender, loan program, and location. Confirm details with a licensed professional.