What Is Earnest Money and How Does It Work?

If you're starting your homebuying journey, you've probably heard the term “earnest money” come up. But what exactly is it—and why does it matter?

Let’s break it down in simple terms so you feel confident putting in an offer on your dream home.

What Is Earnest Money?

Earnest money is a good faith deposit you include with your offer to show the seller you’re serious about buying their home. Think of it as a security deposit on the transaction—it tells the seller you’re not just window shopping.

How Much Is Earnest Money?

The amount typically ranges from 1% to 3% of the purchase price, depending on your location and market conditions. For example, on a $300,000 home, your earnest money might be $3,000 to $9,000.

In hot markets, buyers may offer more to stand out from the competition.

Where Does the Money Go?

Once your offer is accepted, the earnest money is held in an escrow account—usually by the title company, real estate brokerage, or attorney handling the transaction. It’s not paid to the seller directly.

At closing, the earnest money is credited toward your down payment or closing costs.

What If the Deal Falls Through?

This is where contingencies matter.

• You get it back if you back out due to a reason covered by a contingency (e.g., financing falls through, home inspection reveals major issues, or the appraisal comes in low).

• You may lose it if you walk away from the deal for a reason not covered in the contract—or if you simply change your mind after contingencies are satisfied.

This protects sellers from wasting time with buyers who aren't committed.

Why It’s Important

Earnest money strengthens your offer. In a competitive market, a solid deposit tells the seller you’re confident, qualified, and serious about following through.

Final Thoughts

Earnest money is a small part of the homebuying puzzle, but it plays a big role in showing commitment. Work with a trusted agent (like me!) to ensure your offer is strong—and your investment is protected.

Have questions about how to structure your offer? I’d love to help. Let’s chat about your homebuying strategy!