Real Estate Terms

Understanding Earnest Money

Earnest money is one of the more commonly misunderstood parts of a real estate contract. Here's a general explanation.

Earnest money often causes confusion for buyers, so here's a general, plain-language explanation.

What it is

Earnest money is a deposit a buyer typically submits shortly after a purchase agreement is signed, showing they're serious about moving forward with the purchase.

Where it goes

Earnest money is generally held by a neutral third party, such as a title company or escrow agent, rather than going directly to the seller.

How it's applied

At closing, earnest money is typically credited toward the buyer's down payment or closing costs, subject to the terms of the contract.

What can happen to it

Depending on the contract terms and contingencies, earnest money may be refundable or non-refundable in certain circumstances. Because this varies by contract, it's important to read your agreement carefully and ask questions before signing.

This article is general information only. For specific questions about how earnest money applies to your contract, Faith recommends reviewing your agreement closely and consulting a real estate attorney if needed.

A note on this article: This content is educational and general in nature. It is not legal, tax, lending, or financial advice, and it is not a substitute for guidance from a qualified attorney, lender, accountant, or other licensed professional. Market conditions and processes can vary; please reach out to Faith with questions specific to your situation.

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