Earnest Money: How Much, Who Holds It and When You Get It Back
Earnest money is a deposit a home buyer pays to show good faith on a signed contract to buy a home. A seller or a third party, such as a real estate agent or title company, holds it. If the sale closes, the money goes toward your closing costs or down payment. If the contract ends for a reason it allows, you get the deposit back; if you do not perform in good faith, you can lose it to the seller. No federal rule sets the amount: your contract does.
What Earnest Money Is
The Consumer Financial Protection Bureau (CFPB) defines earnest money as a deposit a buyer pays to show good faith on a signed contract to buy a home. Virginia Housing, Virginia's housing finance agency, describes it as money you include with your purchase offer "to show sincerity and intent." It is not an extra fee. It is part of the money you will bring to closing anyway, paid early.
How Much Earnest Money?
We do not quote a typical percentage, because we found no government source that publishes one. Virginia Housing says the amount varies with the market, price range and local norms, and that some sellers require a minimum deposit with the offer. Your agent can tell you what is usual in your area.
Two lender rules show how a large deposit is treated:
- FHA loans: HUD's Handbook 4000.1 requires the lender to verify and document the deposit amount and source if the earnest money deposit exceeds 1% of the sales price, or is excessive compared with your history of saving.
- Fannie Mae loans: the Selling Guide says large earnest money deposits, and deposits above the amount customary for the area, should be closely evaluated.
Plan the deposit as cash you need before you even have a loan. Virginia Housing calls it an out-of-pocket expense and says to plan for it before you begin your home search.
Who Holds the Deposit
The CFPB says a seller or a third party, like a real estate agent or title company, holds the deposit. Fannie Mae's guide names the seller, the real estate agent, the escrow agent or the settlement attorney as parties the money may go to. Your contract names the holder. Pay only the party your contract names, and confirm payment instructions by phone before you wire money; see wire fraud at closing.
State law example: Florida. State real estate license laws set rules for brokers who hold deposits. Florida's statute requires a broker to place a deposit, immediately upon receipt, in escrow with a title company, bank, credit union or savings and loan in Florida, or in a trust or escrow account the broker keeps at a Florida bank, credit union or savings and loan, until disbursement is properly authorized. If the broker gets conflicting demands for the money, the licensee must promptly notify the state real estate commission and then do one of four things: ask the commission for an escrow disbursement order, use arbitration with all parties' consent, go to court, or use mediation with all parties' written consent. Other states have their own rules; check your state's real estate commission.
What Happens to It at Closing
If the sale closes, the earnest money may be applied to closing costs or the down payment. Fannie Mae confirms that the deposit on the sales contract is an acceptable source of funds for both. Virginia Housing adds that if you do not owe money at closing, the deposit is refunded to you.
Your Loan Estimate shows it. Under Regulation Z, the Calculating Cash to Close table must list a Deposit in a purchase: any amount you agreed to pay to a party named in the purchase agreement, to be held until closing, "which is often referred to as an earnest money deposit." If no deposit was paid, the line shows $0. The deposit reduces the cash you bring to closing. See the closing costs guide for the rest of the form, and escrow when you buy a home for how the holder pays everyone at closing.
How Your Lender Checks the Deposit
Lenders check that the earnest money came from your own acceptable funds. Keep the records.
| Loan type | When the lender checks | Proof the lender uses |
|---|---|---|
| Fannie Mae conventional | If the deposit counts toward your minimum contribution, the source must be verified | Bank statements or Form 1006 showing the average balance for the past two months was large enough to support the deposit. Receipt is verified by your canceled check or a written statement from the holder |
| FHA | Deposit over 1% of the sales price, or excessive for your saving history | Canceled check, the holder's certification of receipt, a Verification of Deposit or bank statement, or electronic verification. A gift used for the deposit must meet FHA gift rules |
When You Get It Back and When You Lose It
The CFPB puts the rule in two lines: if the contract is terminated for a permissible reason, the earnest money is returned to the buyer; if the buyer does not perform in good faith, the earnest money may be forfeited and paid to the seller. Virginia Housing adds that if you back out for reasons your contract contingencies do not cover, you could lose the whole deposit or face legal issues.
So the contract decides. Before you sign, read which reasons for cancelling it allows, the deadlines for each, and how you must give notice. If the buyer and seller both claim the money, the holder usually cannot simply pick one; in Florida, for example, the licensee must use one of the dispute steps in the statute above.
Sources & Methodology
- Definition, holder, closing and forfeiture: CFPB, Mortgages key terms. The CFPB site did not respond to our automated retrieval, so we used the archived copy of October 11, 2026.
- Amount, refund and contingencies: Virginia Housing, What is an earnest money deposit?
- Loan Estimate deposit line: Regulation Z, Supplement I to Part 1026, comment 37(h)(1)(iv)-1.
- Lender checks: Fannie Mae Selling Guide B3-4.3-09 and HUD Handbook 4000.1, Update 18, Earnest Money Deposit.
- Florida example: Florida Statutes section 475.25, paragraphs (1)(d) and (1)(k), 2026 edition.
- All sources retrieved November 7, 2026.
FAQ
Is earnest money part of the down payment?
Yes, if the sale closes. The CFPB says it may be applied to closing costs or the down payment, and your Loan Estimate lists it as a Deposit that lowers the cash you bring to closing.
How much earnest money should I put down?
No federal rule sets it. The amount depends on the market, price range and local custom, and some sellers set a minimum. On an FHA loan, a deposit over 1% of the sales price means the lender must document where the money came from.
Do I get earnest money back if the deal falls through?
If the contract ends for a reason it permits, yes. If you back out for a reason your contract does not cover, you can lose it to the seller.
This page is for educational purposes only and is not legal or financial advice. Your purchase contract and state law control your deposit. Ask a real estate attorney or your agent before you sign.
