First-Time Buyers

Earnest Money Explained: How Much, Who Holds It, When You Lose It

By Aritz Boveda · Published October 21, 2026
Fact-checked against primary sources on October 21, 2026

Earnest money is a deposit you put down when a seller accepts your offer, to show you’re serious about buying. It’s commonly 1% to 3% of the purchase price, so $3,500 to $10,500 on a $350,000 home, and it’s held by a neutral third party until closing. If the sale goes through, the full amount is credited toward your down payment and closing costs. If you back out for a reason your contract doesn’t cover, you can lose it.

How earnest money works

Once you and the seller sign a purchase agreement, you usually have a few days to deliver the deposit, often by wire or certified check. The contract states the amount, the deadline and who will hold it.

The money doesn’t go to the seller. It sits in an escrow or trust account with a title company, escrow company, real estate brokerage or attorney, depending on local practice. On your Loan Estimate and Closing Disclosure it shows up as a “Deposit” line that reduces the cash you bring to closing. Federal disclosure rules describe it as an amount you’ve agreed to pay to a party named in the purchase contract, usually called an earnest money deposit.

Earnest money is not an extra cost. It’s an early piece of money you were going to spend anyway.

How much earnest money is typical

Guides from Chase and HomeLight put the usual deposit at 1% to 3% of the price. In competitive markets with few homes for sale, buyers sometimes offer more, often around 5% and occasionally up to 10%, to make an offer stand out. Local customs differ, so your agent can tell you what’s normal locally.

A larger deposit can strengthen an offer, but it also raises what’s at stake if you have to walk away without contract protection. Only offer an amount you could afford to lose in the worst case.

Contingencies that protect your deposit

A contingency is a condition in the contract that lets you cancel and get your earnest money back if something specific happens. The most common ones:

• Inspection contingency. You can cancel or renegotiate if a home inspection turns up problems you aren’t willing to accept.
• Financing contingency. You can cancel if you can’t get approved for the mortgage on the terms described in the contract.
• Appraisal contingency. You can cancel or renegotiate if the home appraises for less than the price, which matters because the lender bases your loan on the appraised value.
• Home sale contingency. You can cancel if you can’t sell your current home by a set date.
• Title contingency. You can cancel if the title search shows liens or ownership problems the seller can’t clear.

Every contingency has a deadline. Miss it, and in many contracts the protection ends even if the underlying problem still exists. Put each deadline on your calendar the day you sign.

When you can lose earnest money

You generally risk forfeiting the deposit when you:

1. Back out for a reason no contingency covers, such as finding a house you like more.
2. Let a contingency deadline pass and then try to cancel under it.
3. Fail to close on time without an agreed extension.
4. Waived contingencies to win a bidding war, and then ran into one of the problems they would have covered.

The CFPB notes that you can always walk away at closing if you’re not comfortable, but you might lose any deposit you gave the seller and face other consequences under the purchase contract. Many contracts limit the seller’s remedy to keeping the earnest money; others don’t. Read that clause before you sign.

What happens in a dispute

If buyer and seller disagree about who gets the deposit, the holder generally can’t just pick a side. State rules vary, but real estate commissions in states such as Maine and Idaho say they don’t decide these disputes. The broker or escrow holder keeps the funds until both parties sign a release, a court rules, or a process set by state law or the contract (such as mediation) resolves it. That can take months, which is one more reason to follow contract deadlines closely.

Worked example: a $350,000 purchase

You offer $350,000 with 2% earnest money, $7,000, and a 10-day inspection contingency. The title company holds the deposit.

If the sale closes: Suppose your down payment is $35,000 and closing costs come to $9,128.50 (the same figures used in our closing costs example). You’d need $44,128.50 in total. Your $7,000 deposit is credited, so you bring $37,128.50 to closing.

If the inspection finds a failing roof on day 6: You cancel in writing under the inspection contingency before day 10. You should get the $7,000 back.

If you change your mind on day 14: The inspection deadline has passed and no other contingency applies. Under a typical contract, the seller can claim the $7,000.

Before you wire it

• Confirm the exact amount, deadline and holder in the signed contract.
• Get wiring instructions directly from the escrow or title company, and verify them by calling a phone number you already have. Fraudsters send fake instructions by email.
• Get a written receipt once the funds arrive.
• List every contingency deadline and set reminders a few days early.
• Keep proof of where the money came from. Your lender will likely ask for statements showing the deposit leaving your account.

Your deposit is safest when you understand your contract better than anyone at the table. If anything in it is unclear, ask your agent or a real estate attorney before you sign. To see how the deposit fits into your overall budget, start with how much house you can afford.