A Taste of Money: What is an Earnest Payment?


Are you in the process of buying a house? Whether you’re a first-time home buyer or you’ve done this before, buying a house can be an overwhelming process.

One of the important steps of buying a house that people are unprepared for is making an earnest money deposit. 

There are a lot of things that should be considered before making an earnest money deposit to the seller. Keep reading our guide to learn about what earnest money is, how much you should offer, and if earnest money is refundable. 

What Is Earnest Money?

Earnest money is a deposit that you can make to show a seller that you’re serious about buying their house. While it isn’t always required, sellers are more likely to consider your offer if you’ve included earnest money because it holds you to your purchase agreement. 

This money is usually included as part of the offer you make for your real estate agent to send to the seller. If the seller accepts your offer, your earnest money check will be held in an escrow account until closing.

Once your offer has been accepted, the house is taken off of the market. At closing, you can take your deposit back or apply it to the closing costs of your house. 

How Much Is an Earnest Deposit?

The amount that you should offer for an earnest deposit depends on the price of the house and the state of the local real estate market.

Typically, an earnest money deposit should be between 1% to 3% of the price of the house, but you’ll want to offer more if it’s a seller’s market

While you want your offer to be taken seriously, you don’t want to offer too much money in case you’re unable to get it back. If you’re unsure of how much to offer for an earnest payment, talk to your real estate agent to see what they recommend. 

Is Earnest Money Refundable?

Earnest money can be refundable in certain circumstances. When you sign a purchase agreement, there will be contingencies listed that will go over the scenarios in which you can get an earnest money refund

We’ve made a brief list of some situations where you’re likely to get your earnest deposit back, but you’ll always need to check your purchase agreement to be certain. 

  • Mortgage contingencies are where you’re unable to obtain the financing that you needed to purchase the house. 
  • Appraisal contingencies are where the appraised value of the property comes in lower than the asking sale price. 
  • Inspection contingencies are when the home inspection reveals significant problems with the house that were not disclosed in the purchase agreement. 

If you haven’t already signed a purchase agreement, talk to your real estate agent about what contingencies you want to include in the contract. 

Understand Where Your Money Goes

Earnest money deposits are an important part of real estate transactions but they’re not often discussed in detail. If you’re buying a house, you should always know where your money is going and if you’ll get it back.

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