What Is Earnest Money? (2026)

Earnest money is a good-faith deposit you put down when you make an offer on a house to show the seller you are serious. It is usually 1% to 3% of the purchase price, held by a neutral third party (an escrow or title company), not pocketed by the seller. If the deal goes through, your earnest money is applied toward your down payment and closing costs, so it is not an extra cost, just an early one.

How earnest money works

1. You make an offer and include an earnest money amount (often $1,000 to several thousand, or a percentage of the price).
2. The deposit goes into escrow, a neutral account, not the seller’s hands, once your offer is accepted.
3. At closing, it is credited to your down payment and closing costs.

On a $300,000 home, a 1% earnest deposit is $3,000, which simply moves from escrow into your purchase at the closing table.

When you keep it, and when you lose it

This is the part that matters most. Your purchase contract includes contingencies, conditions that protect you. If a contingency is triggered, you get your earnest money back. If you walk away for a reason not covered by a contingency, the seller can keep it.

You usually keep it if…	You can lose it if…
The home inspection reveals serious problems	You back out for no contracted reason
The appraisal comes in too low	You miss contract deadlines
Your financing falls through (financing contingency)	You waive contingencies and then change your mind
The seller backs out	You fail to perform your side of the deal

The three common contingencies, inspection, appraisal, and financing, are what make earnest money refundable in normal situations. Waiving them to make a stronger offer is riskier because it puts your deposit on the line.

How much should you offer?

• 1% to 3% is typical in most markets.
• In a competitive market, buyers sometimes offer more (or waive contingencies) to stand out, but that raises the risk to the deposit.
• In a slow market, a smaller deposit is often fine.

Your agent will advise an amount that signals you are serious without overexposing your cash.

Bottom line

• Earnest money is a good-faith deposit (1% to 3%) held in escrow, then applied to your purchase.
• Contingencies (inspection, appraisal, financing) make it refundable in normal situations.
• You risk losing it mainly by backing out without a contracted reason or waiving your contingencies.

Plan the cash you will need to close with our mortgage calculator and budget calculator. This article is general information, not financial or legal advice.