Earnest money: how much and when you get it back

What it is and who holds it

The deposit comes after the seller accepts your offer, when you sign the contract. The CFPB says the money is held by the seller or by a third party such as a real estate agent or a title company.

If the sale closes, the deposit may be applied to your closing costs or down payment (CFPB). Money you paid earlier reduces what you bring at the table. See closing costs explained.

When you get it back

Your protection is the list of contingencies in the contract. The CFPB recommends making your purchase offer and sales contract contingent on obtaining financing and on a satisfactory inspection. If the inspection turns up serious flaws, a buyer with that contingency is not contractually required to buy the home.

Deposits can be lost. If the buyer does not perform in good faith, the deposit may be forfeited and paid to the seller. The CFPB’s intent-to-proceed page warns of a related risk: delays in giving your lender documents can push you past a rate lock, and if your purchase contract has a deadline, you could lose the home and your deposit.

How much should you offer?

There is no federal figure. A larger deposit puts more of your money at risk. The amount in your offer is a negotiated term, so read what your contract says about the amount, the due date and what happens if you cancel. Match deadlines to your timeline: see the home buying timeline, home inspection and mortgage preapproval.

Does your lender check it?

Lenders may ask where your deposit came from. Keep a copy of your cancelled check or a receipt from the deposit-holder, and ask your lender what it needs for your loan type. See FHA loans and VA loans for program rules.

A worked example

This uses assumed numbers to show the arithmetic, not a typical deposit. Say you buy a $400,000 home with a $20,000 down payment, and your contract calls for a $5,000 deposit. If the sale closes and the deposit is applied to the down payment, the remaining down payment you bring at closing is $15,000. If the contract is ended by a contingency you used correctly, the $5,000 returns to you. If the deposit is forfeited, the seller can receive the $5,000 and you have lost it. See how much down payment you need.

Protect your deposit

Before you send money, check four things in the contract: who holds the deposit, the due date, the deadlines for each contingency, and how the deposit is released if either side cancels. Get written proof when the holder receives it. Confirm payment instructions through a phone number you already trust, because the CFPB warns that scammers target homebuyers days before closing. Put every deadline on your calendar and tell your lender and agent right away if you may miss one.

New construction

A homebuilder may ask for an upfront deposit, also called earnest money. The CFPB advises asking the builder under what conditions the deposit can be returned before you commit, and notes that you do not have to use the builder’s lender.

Where states differ

States and contract forms differ on who may hold the deposit, how many days you have to cancel, how a dispute over release is handled and whether an attorney reviews the contract. Read the escrow and default paragraphs of your own contract. For a state example of a standard contract form, see closing costs in Texas.