# Earnest money

> Earnest money is a deposit a buyer makes after a seller accepts their offer, held by a neutral third party until closing. It counts toward the down payment and closing costs, and the buyer can lose it by breaking the contract.

Also called: EMD, earnest money deposit, good faith deposit. Topic: Buying a home.

The deposit shows the seller you’re serious, and it gives them something if you walk away without a reason the contract allows. If the sale closes, it counts toward your [down payment](https://brokerandagent.com/glossary#down-payment) and [closing costs](https://brokerandagent.com/glossary/closing-costs).

## How much is earnest money?

There’s no national standard. The amount is negotiable and written into the [purchase agreement](https://brokerandagent.com/glossary#purchase-agreement). Local custom, the price of the home and how much competition there is all push it up or down, and in a busy market a larger deposit can help an [offer](https://brokerandagent.com/glossary#offer) stand out.

Ask your agent what’s normal for your area and price range. A bigger deposit doesn’t cost you more if the sale closes, since it’s credited back to you, but it puts more money at risk if you back out without a contract reason.

## Who holds earnest money?

A neutral third party, not the seller. Depending on your state and the contract, that’s usually a [title company](https://brokerandagent.com/glossary#title-company), an escrow company, a [closing attorney](https://brokerandagent.com/glossary#closing-attorney) or a brokerage’s trust account. The contract names the holder and the deadline for paying, which is usually soon after acceptance.

Pay it exactly the way the holder tells you to, and confirm any wiring instructions by phone using a number you already trust. Criminals send fake payment instructions by email at exactly this moment; read up on [wire fraud](https://brokerandagent.com/glossary#wire-fraud) before you send anything.

## When do you get earnest money back?

Generally when the sale falls through for a reason the contract allows and you meet its deadlines. The usual reasons are [contingencies](https://brokerandagent.com/glossary/contingency): an inspection you aren’t satisfied with, a loan that doesn’t come through, or an appraisal below the price, if your contract includes those protections.

The CFPB points buyers to the financing (mortgage) contingency in their contract, which says whether the deposit is refunded if the sale is cancelled because you couldn’t get a loan. Timing matters as much as the reason: most contingencies end on a set date, and after it the protection may be gone.

## When can you lose it?

If you back out for a reason the contract doesn’t cover, or after your contingency deadlines have passed, the seller may be entitled to keep the deposit. Many contracts make it the seller’s main remedy, though some allow other claims too.

Releasing the money usually takes both parties’ signatures. When buyer and seller disagree, the holder may keep it until they settle or a court or arbitrator decides. Rules on deposits vary by state, so talk to a real estate attorney if a dispute comes up.

## Does the lender care where the deposit came from?

Yes. Because earnest money can count toward your down payment and closing costs, lenders may ask for proof of where it came from, such as a canceled check and bank statements. Fannie Mae’s guidelines call for a closer look at deposits that are large or above what’s customary for the area.

## Where earnest money goes on a $400,000 purchase

| | |
| --- | --- |
| Purchase price | $400,000 |
| Earnest money paid at contract (example) | $8,000 |
| Down payment (10%) | $40,000 |
| Closing costs (example) | $12,000 |
| Total cash needed | $52,000 |
| Less earnest money already paid | −$8,000 |
| Left to bring to closing | $44,000 |

The deposit isn’t an extra cost. It shows up as a credit on your [Closing Disclosure](https://brokerandagent.com/glossary#closing-disclosure). The $8,000 is only an example; what’s customary varies by market.

## Common mistakes

- Thinking earnest money is an extra fee rather than part of your cash to close.
- Missing a contingency deadline and assuming the deposit is still refundable.
- Wiring the deposit from emailed instructions without calling to confirm them.
- Paying the seller directly instead of the holder named in the contract.

## Questions

### Is earnest money the same as a down payment?

No, but it becomes part of it. You pay the deposit when the contract is signed, and it’s credited toward your down payment and closing costs when you close.

### Can the seller just keep my earnest money?

Only under the contract’s terms. Usually both sides must sign a release, and if they disagree, the holder may keep the money until they settle or a court or arbitrator decides.

### Is earnest money refundable?

It’s refundable when you cancel for a reason the contract allows, within its deadlines. Otherwise you risk losing it, so read your contingencies and dates closely.

Calculator: [Closing cost calculator](https://brokerandagent.com/tools/closing-cost-calculator)

## Related terms

- [Contingency](https://brokerandagent.com/glossary/contingency): A contingency is a condition in a home purchase contract that must be met for the sale to go ahead, such as a satisfactory inspection, an appraisal at or above the price, or loan approval, each with its own deadline.
- [Purchase agreement](https://brokerandagent.com/glossary#purchase-agreement): The signed contract between a buyer and a seller that sets the price, earnest money, contingencies, closing date and other terms of a home sale. Once both sides sign and deliver it, it’s binding, subject to its contingencies.
- [Escrow](https://brokerandagent.com/glossary#escrow): Escrow is an arrangement in which a neutral third party holds money or documents, like the earnest money deposit or the deed, until the conditions of a sale are met. The word also names a lender’s account for taxes and insurance.
- [Down payment](https://brokerandagent.com/glossary#down-payment): A down payment is the part of a home’s price you pay in cash at closing instead of borrowing. It’s usually stated as a percentage of the price, and less than 20% down on a conventional loan typically means paying mortgage insurance.
- [Closing costs](https://brokerandagent.com/glossary/closing-costs): Closing costs are the fees and taxes buyers and sellers pay to complete a home sale beyond the price itself, such as lender charges, title insurance, settlement and recording fees and transfer taxes. Who pays which depends on the contract and local custom.
- [Wire fraud](https://brokerandagent.com/glossary#wire-fraud): Real estate wire fraud is a scam in which criminals pose as a title company, agent or lender, usually by email, and send fake wiring instructions so closing money goes to their account. Always confirm instructions by phone at a known number.

## Sources

- [CFPB: Do I have to sign at closing if I don’t like the terms?](https://www.consumerfinance.gov/ask-cfpb/at-the-mortgage-loan-closing-do-i-have-to-sign-if-i-dont-like-the-terms-en-185/)
- [Fannie Mae Selling Guide B3-4.3-09: Earnest money deposit](https://selling-guide.fanniemae.com/sel/b3-4.3-09/earnest-money-deposit)
- [Legal Information Institute: Contingency](https://www.law.cornell.edu/wex/contingency)

Checked 2026-10-02 by the Broker & Agent team. General information, not legal, tax or lending advice.

Source: https://brokerandagent.com/glossary/earnest-money