Earnest Money in Real Estate – Everything explained

Earnest money is the amount of money you drop to show you are ready to purchase a home.

What is Earnest Money?

You have finally set your eyes on your dream property, and you can’t wait to get it. You are ready to prove to the home seller that you want that house, and this is where earnest money comes to play.

Earnest money is the amount of money you drop to show you are ready to purchase a home. You may also hear this term is called “good faith deposit.”

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Earnest money protects the seller if the buyer decides to back out. How’s that? It’s simple. When a buyer and seller agree on a property, the seller takes the house off for sale, and they move to complete the transaction. If the contract is broken and the seller has to put the house back on the market and begin the entire process again, this can lead to a tremendous financial crisis.

Earnest money is usually held in an escrow account until it is all finished. If the business goes without any bumps, the earnest money is added to the buyer’s down payment or finishing payments.


The property you are interested in determines the amount of earnest money you should offer. A slow market will not need as much money as a property, with many buyers competing for it. If you have eyes on a property with many competitors, it is best if you increase the amount of earnest money.


Sometimes, a transaction may not go through, and you will need your money back.  As long as your sales contract contains the right contingency, you will get most, if not all, of your earnest money back.

However, if you choose to walk away from the contract, you as a buyer will lose your earnest money and will not be able to get it back.

Your contingency should include the necessary things such as a home inspection, loan appraisal, your financial issues, and any other information that you can add.

Earnest money is usually applied towards your closing costs or added to the down payment of your mortgage. Most of the time, the earnest money is an unexpected cost and may seem like a financial burden, but it remains a valuable asset when purchasing a home.

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Harish is the editor at howto Finance. Here we publish high quality trending news topics on Business, Finance, Loans and Credit-Cards etc. Our editorial includes worldwide topics.

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