Earnest Money is a deposit a buyer submits alongside a purchase offer to signal genuine intent to complete the home sale.
When you make an offer on a home, your real estate agent will typically ask you to include an earnest money deposit along with the offer paperwork. This deposit is held in escrow by a neutral third party, often a title company or escrow firm, until closing. At closing, the funds are usually applied toward your down payment or closing costs. The amount can vary widely depending on local market conditions and purchase price, but buyers commonly deposit somewhere in the range of 1 to 3 percent of the offer price, though competitive markets may call for more. If the sale proceeds smoothly, the deposit simply rolls into your other closing funds. However, if the deal falls through, what happens to the deposit depends heavily on the terms written into your purchase contract. Contingencies, such as a financing contingency or inspection contingency, can protect your deposit if you need to back out for a covered reason. Without those protections, you could forfeit the entire deposit to the seller.
Watch for: Review your contract carefully before signing to understand exactly which conditions allow you to recover your earnest money. Common contingency deadlines are short, sometimes just a few days, so missing them could put your deposit at risk. HomeRule provides general cost information only and is not a real estate agent or legal advisor. For guidance specific to your transaction, consult a licensed professional in your area.
See also: Escrow, Closing Costs, Contingency