Process explainer
Earnest money is a promise you make when you offer. The down payment is what you pay when you close.
Earnest money is the first real money in the transaction and the one buyers understand least. It is not an extra cost, it is not the down payment, and it is refundable — right up until it is not.
At a glance
A good-faith deposit submitted with your offer, held by escrow or the title company, and credited toward your costs at closing.
Your equity contribution at closing, applied against the purchase price and reducing the amount you borrow.
| Factor | Earnest Money | Down Payment |
|---|---|---|
| When it is paid | Days after offer acceptance | At closing |
| Who holds it | Escrow or title | Applied at settlement |
| Refundable | Yes, within contingency periods | Not applicable |
| Credited at closing | Yes | It is the payment |
| Amount | 1%–3% of the price | 0%–20%+ of the price |
| Purpose | Shows the seller you are serious | Builds equity, reduces the loan |
Earnest money is not an extra cost. It is your down payment arriving early — unless you break the contract.
Plain English first, then the rule as it is published, then what it means for your file.
“The lender must document the borrower's earnest money deposit, including verification that the funds came from an acceptable source and that the borrower had sufficient funds.”
Write the check from the account you already disclosed. A deposit sourced from cash or an undisclosed account becomes a closing condition you will have to explain.
With every accepted offer. Your purchase contract sets the amount and the deadline, usually one to three business days after acceptance.
At closing, wired in advance. Your earnest money is credited against it on the settlement statement.
Earnest money is refundable inside your contingencies and forfeitable outside them. Never waive a contingency you do not fully understand.
Not if your financing contingency is still in effect and you notify in writing within the deadline. Once that contingency expires, the deposit is at risk.
Local custom is typically 1% to 3%. A larger deposit strengthens an offer but increases what is at stake.
A neutral escrow or title company — never the seller directly.
Every rule stated on this page is traceable to the agency handbook that governs it. Guidelines change — confirm anything time-sensitive with a licensed loan officer before acting on it.
Reviewed by Brian Mix, licensed loan officer (NMLS #111175) · Last checked July 2026.
Ask RED. It can walk through your specific numbers, explain any term on this page, and point you to the guide that goes deeper — no credit pull, no sales pressure.
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