Earnest Money Calculator

Earnest money (also called a good faith deposit or EMD) is a deposit made by a homebuyer to demonstrate serious intent to purchase a property. Typically 1-3% of the purchase price, earnest money is held in escrow and applied toward your down payment or closing costs at closing. It protects sellers from buyers who make offers without genuine commitment and compensates them if buyers back out without valid contractual reasons.

Earnest money typically ranges from 1-3% of the purchase price, though amounts vary by market. In competitive markets, offering 2-5% or more can strengthen your offer. For a $400,000 home: 1% = $4,000, 2% = $8,000, 3% = $12,000. Factors affecting the amount include local customs, market competition, property price, seller preferences, and your financial position. Your real estate agent can advise on competitive amounts for your area.

Earnest money refundability depends on contingencies in your purchase contract. You can typically get your deposit back if: the home inspection reveals major issues, you can't obtain financing (with a financing contingency), the appraisal comes in low, the title search reveals problems, or you cancel within the inspection period. You forfeit earnest money if you back out without a valid contingency reason, miss contract deadlines, or breach the agreement.

Earnest money is typically paid within 1-3 days after the seller accepts your offer, though the exact timeline is specified in your purchase agreement. The deposit is made by personal check, cashier's check, or wire transfer to the escrow company, title company, or real estate broker's trust account—never directly to the seller. You'll receive a receipt confirming the deposit.

At closing, earnest money is applied as a credit toward your down payment and closing costs, reducing the cash you need to bring to closing. For example, if you owe $50,000 at closing and paid $5,000 earnest money, you'll only need to bring $45,000. The earnest money never goes to the seller separately—it's already part of your total payment to them through the closing settlement.

Sellers can keep earnest money only if the buyer breaches the contract without a valid contingency. Valid reasons buyers get refunds: failed inspection, financing denial, low appraisal (with contingencies). Invalid reasons (seller keeps deposit): buyer simply changes mind, buyer misses deadlines, buyer backs out after contingency periods expire, or buyer fails to perform contractual obligations. Disputed deposits may require mediation or litigation.

Earnest money is held in an escrow account—a neutral third-party trust account managed by a title company, escrow company, or real estate broker. The funds cannot be released without authorization from both parties or a court order. Escrow protects both buyer and seller, ensuring the money is available at closing or returned to the appropriate party if the deal falls through according to contract terms.

Yes, new construction purchases typically require earnest money, often higher than resale homes. Builders commonly request 5-10% of the purchase price because construction takes months and they want committed buyers. Some builders require deposits in multiple installments: initial deposit at contract signing, additional amounts at foundation completion, framing, etc. These deposits are usually non-refundable after certain construction milestones, so review contracts carefully.

Earnest money is a good faith deposit paid early in the transaction (1-3% of price) to show commitment, while the down payment is the larger amount (typically 3-20%) paid at closing. Earnest money is credited toward your down payment—they're not separate costs. For example, with a $10,000 earnest deposit and $40,000 down payment, you've already paid $10,000, so you bring $30,000 more at closing.

Yes, earnest money amounts are negotiable. In buyer's markets with low competition, you may offer 1% or less. In seller's markets, higher deposits (3-5%+) make offers more attractive. Sellers prefer larger deposits as they indicate serious buyers and provide greater compensation if deals fail. However, offering more than necessary ties up your funds, so balance competitiveness with your financial flexibility and contract protections.

A bounced earnest money check is considered a contract breach and may allow the seller to cancel the purchase agreement and potentially sue for damages. Most contracts specify that earnest money must be 'good funds' (cashier's check or wire transfer) to avoid this issue. If your check bounces, immediately provide certified funds to cure the default. Repeated payment failures demonstrate bad faith and may result in losing the property and facing legal action.

No, earnest money is not legally required to purchase real estate—it's a customary practice to demonstrate good faith. However, most sellers won't accept offers without earnest money because it provides financial assurance of buyer commitment. In rare cases (such as all-cash offers from trusted buyers or off-market family transactions), parties may proceed without earnest money, but this is uncommon in traditional real estate transactions.