You found your dream home, and now you need to put some earnest money down to get the seller to take it off the market. How much is enough? Knowing how much money you should put down to show you are “in earnest” depends on a lot of factors. Here’s what you need to know.
What is earnest money?
Earnest money is a chunk of change you plop down to show a seller you’re serious about buying their house. It doesn’t mean you buy it no matter what, but it shows enough of a commitment that the seller feels comfortable taking the house listing down and starting the process with you. A third party holds the money in escrow.
How much should you give in earnest money?
Earnest money deposits usually come in somewhere between 1% and 3% of the total home purchase price, although some first-time homebuyer programs may allow a smaller amount as they absorb the cost. If the market is hot and a lot of offers are coming in, the seller may choose the buyer offering the most, however. If the home you want is selling for $200,000, you’ll need anywhere for $2,000 to $6,000 in earnest money.
Getting your earnest money back
The only way you lose your earnest money is if you back out of the home purchase for no good reason. That means you forfeit the money because you weren’t in earnest, and the seller gets to keep it for their time and trouble pursuing you as a viable buyer. They have to relist the house, and the best time to sell may have passed.
If the sale goes through, you get these funds back to apply to your closing costs or down payment. If you decide not to buy the house for reasons covered in contingencies in your offer, you also get the earnest money back.
If you’re confident, you can safely put down a fairly high amount as earnest money. If you think you might lose your money for any reason, you may want to keep the risk as low as possible.
View loan limits in your area
Rates & Money is your go-to destination for free information about mortgages. Our home buyer guides and home loan articles are designed to help you make informed decisions when buying a homeView