Earnest money: how it works and when you get it back

What earnest money actually is

Earnest money is a good-faith deposit you send to the escrow or title company within 1–3 business days of your offer being accepted. It's NOT a fee — it's your money, held in trust, applied to your down payment and closing costs at close.

On a $400,000 purchase, 1%–3% earnest = $4,000–$12,000. Higher amounts (3%–5%) can strengthen your offer in competitive situations, but they're also the amount at risk if you default.

When you get it back

You get 100% of your earnest money back if you cancel the contract for any reason covered by an active contingency:

• Financing contingency: Loan denied → refund
• Inspection contingency: Discovery of unacceptable defects → refund
• Appraisal contingency: Home appraises for less than contract → refund
• Title contingency: Cloud on title, unrecorded easement → refund
• HOA / disclosure contingency: Unacceptable HOA docs → refund

Once the contingency period expires and you haven't objected, that contingency is waived — and canceling for that reason forfeits earnest money.

When you lose it

You lose your earnest money if you:

• Cancel outside of active contingencies (buyer's remorse, found a cheaper home, changed your mind)
• Fail to perform (miss closing date without a valid reason)
• Get financing declined after waiving the financing contingency
• Fail to meet contractual deadlines for earnest money delivery, contingency releases, or closing

Gray areas: 'The rate went up so my payment is higher than I want' is not a valid financing contingency trigger if the loan is still approved. Read your contract.