What Is The Earnest Money Deposit?

When a home buyer wants to purchase a home, they will start by making an offer to purchase. As a part of this offer, the borrower will need to show to the seller that the offer is legitimate. The Earnest Money Deposit (EMD) is money paid by the buyer, after an offer is accepted by the seller, to validate that their offer is legitimate. This is also referred to as a “good faith deposit”.

What You Need to Know

Timing

Typically, this is done within three days of having an offer accepted by a seller. However, this can vary, so buyers should be prepared to make the deposit when making an offer.

Amount

The amount of the EMD is typically between 1% and 3% of the home’s purchase price. In some cases, buyers can increase the amount in an effort make their offer more competitive.

How do I Make a Deposit?

Cashier’s checks or wire transfers are the preferred methods of depositing earnest money. In some cases, a personal check is permitted.

What happens to the deposit?

The EMD is provided to an escrow firm or attorney, depending on the law in your state, and is held in reserve. Technically, no one “gets” your money until the sale is successful or the deal falls through.

  • If the sale is successful, the money is applied to your down payment on the home purchase.
  • If you are not approved prior to the mortgage contingency date (the date you have to be approved for financing by a lender as stipulated in the P&S) or the seller backs out for an acceptable reason, you get the earnest money deposit back without penalty.
  • If the buyer backs out of the sale for reasons not covered by contingency in the P&S, then the seller gets the buyer’s earnest money.

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