What Every Buyer Should Know About Earnest Money Deposits

Della Lazare
Sep 4, 2025
2 min read

When you find the perfect home and submit an offer, you’ll often be asked to provide an earnest money deposit. Sometimes called a “good faith deposit,” this money shows the seller you’re serious about buying their home. But what exactly is it, how much should you expect to pay, and what happens to it? Let’s break it down.

What Is an Earnest Money Deposit?

An earnest money deposit is a sum of money put down by the buyer when making an offer on a home. It’s not an extra fee — it’s applied toward your down payment and closing costs once the deal goes through. Think of it as a promise that you intend to follow through on the purchase.

How Much Is It?

The amount varies depending on the market and the home’s price, but it’s typically 1% to 3% of the purchase price. In very competitive markets, buyers may offer more to strengthen their offer.

How Does It Protect Buyers and Sellers?

For Sellers: It shows the buyer is serious and helps protect against wasted time if the buyer walks away without cause.
For Buyers: The money is held in escrow and applied to your purchase if the deal closes — not lost.

When Can You Lose It?

You can forfeit your earnest money deposit if you back out of the contract for reasons not covered by contingencies. Common examples include:

Changing your mind after the offer is accepted.
Failing to meet agreed-upon deadlines.
Walking away without cause.

How Buyers Are Protected

Most contracts include contingencies that protect your deposit:

Inspection Contingency: Lets you back out or renegotiate if major issues are found.
Financing Contingency: Protects you if your loan falls through.
Appraisal Contingency: Ensures the home is worth the agreed price.

If the sale falls through for reasons covered by contingencies, your deposit is typically returned.

Final Thoughts

An earnest money deposit is an important part of the homebuying process. It reassures the seller, strengthens your offer, and ultimately goes toward your purchase. As long as you understand your contract and contingencies, it’s a safe and smart step in buying your dream home.