Earnest Money Explained: How Much to Put Down and When You Get It Back

Earnest money is a deposit a buyer puts down when making an offer on a home to show the seller the offer is serious. It is not a fee and, in most cases, it is not an extra cost — the amount is generally credited back to you at closing. What matters most is understanding where the money is held and the conditions under which you get it back.

What earnest money is

When you and a seller sign a purchase agreement, the buyer typically deposits earnest money — sometimes called a "good-faith deposit" — into a neutral account while the sale moves toward closing. It signals commitment: a seller taking their home off the market wants assurance the buyer intends to follow through.

The deposit is part of the offer and escrow steps of the buying process. It is separate from your down payment and your closing costs, though it is usually applied toward them at the end.

How much earnest money is typical

There is no single national rule. The amount is negotiated and varies widely by local market and price point — in competitive markets sellers may expect more, and in slower markets less. Buyers often express it as a small percentage of the purchase price, but the specific figure is set in your contract, not by law.

What influences the amount

• Local market conditions — a strong seller's market can push deposits higher.
• How competitive your offer needs to be — a larger deposit can strengthen an

offer without raising the price.

• The seller's expectations — some listings specify a preferred deposit.

Where the money is held

Earnest money is not paid directly to the seller. It is held by a neutral third party — commonly an escrow company, title company, or brokerage trust account, depending on your state's customs — until the transaction closes or is canceled. Holding it in escrow protects both sides: the seller can't spend it early, and the buyer can't unilaterally reclaim it outside the contract terms.

When you get it back

This is where contingencies matter. A contingency is a condition in your contract that must be met for the deal to proceed, and each one gives you a protected way to cancel and recover your deposit if you act within its deadline.

Common contingencies include:

• Financing — you can cancel if your mortgage falls through.
• Appraisal — you can cancel if the home appraises below the agreed price.
• Inspection — you can cancel based on inspection findings.

If you cancel within a contingency's terms and timeline, your earnest money is typically refunded. If you walk away for a reason your contract does not protect — or after your contingency deadlines pass — you can forfeit the deposit to the seller. Because these rules and deadlines are set by your contract and vary by state, read them carefully and ask your agent or attorney before waiving anything.

The bottom line

Earnest money is a normal, expected part of making an offer, not a penalty. Put down an amount that makes your offer competitive, make sure it goes into a neutral escrow account, and keep your contingency deadlines in view so the deposit stays protected.