When you make an offer on a home, you usually put down earnest money to show the seller you’re serious. This money is held in escrow until the sale is finalized, protecting both you and the seller during the transaction.
So what happens to that money at closing? In most cases, your earnest money is applied toward your down payment or closing costs, reducing the cash you need to bring to the closing table.
Still, what happens to earnest money at closing can vary depending on the terms of your contract. In this Redfin guide, we’ll walk through how it works, when you might get it back, and what to expect in different scenarios.
In this article:
What is earnest money?
Earnest money is a deposit you make after your offer on a home is accepted to show the seller that you’re serious about buying. Think of it as a good-faith payment that tells the seller you’re committed.
This deposit is usually between 1% and 3% of the home’s purchase price, but the amount can vary based on the local market and the agreement between you and the seller.
The earnest money is typically held in an escrow account — a neutral third party, such as a title company or real estate brokerage, holds onto the funds until the sale is finalized. This ensures that neither the buyer nor the seller can access the money prematurely, protecting both parties during the transaction.
What happens to earnest money at closing?
In most real estate transactions, your earnest money is applied directly toward your home purchase at closing. This means it can either reduce your down payment or be credited toward closing costs like lender fees, title insurance, and other expenses.
Here’s a closer look at what typically happens to earnest money once you reach closing:
Earnest money can be applied toward your down payment
In most cases, if you’re making a down payment on your home, your earnest money is subtracted from the total down payment you owe. For example, if your down payment on your dream home in Boston is $20,000 and you’ve already put $5,000 in earnest money, you’d only need to bring $15,000 more to closing to cover the remainder of your down payment.
Earnest money can be applied to closing costs
If your down payment is already covered or you’ve paid a smaller portion upfront, the earnest money can go toward closing costs, which include fees like lender charges, title insurance, and other closing expenses. This reduces the amount of cash you need to bring to the closing table.
Potential refund of earnest money
In certain situations, such as loans with little or no down payment (like VA or USDA loans) or when seller concessions or lender credits reduce your total costs, the earnest money may exceed what you owe at closing. In these cases, the leftover portion is refunded to you.
Do you get your earnest money back at closing?
In most cases, you don’t typically get your earnest money back as a separate payment or cash refund at closing. Your earnest money is applied to your homebuying expenses, so while you’re not handed a check, that money still goes toward your home purchase.
That said, there are a few instances where receiving your earnest money back at closing is possible:
- You paid more than you owe. If your earnest money exceeds what you owe at closing, the difference will be refunded.
- You’re using a no-down-payment loan. VA and USDA loans don’t require a down payment. If your closing costs are less than your earnest money, you’ll get the extra back.
- You received seller concessions or lender credits. These can lower your out-of-pocket costs, potentially leaving some of your earnest money unused, resulting in a refund.
Example: You put down $4,000 in earnest money for a house in Portland, OR. Thanks to seller concessions and lender credits, your final amount due at closing is just $3,000. You’ll receive the remaining $1,000 back after closing.
Other possible outcomes for your earnest money
While earnest money is usually applied to your purchase at closing, there are situations where the sale doesn’t make it that far. In these cases, your earnest money could either be refunded or forfeited, depending on what caused the deal to fall through:
1. You back out due to a contingency → you get your earnest money back
Most purchase agreements include contingencies that allow you to cancel the deal without penalty. If you back out for one of these protected reasons, you’ll get your earnest money back.
- Inspection contingency: If the home inspection reveals serious issues and you decide to walk away (within the agreed timeframe), you can get your money back.
- Financing contingency: If your loan falls through despite your best efforts, you can typically back out and recover your earnest money.
- Appraisal contingency: If the home appraises for less than the purchase price and you can’t negotiate a lower price, you might be able to walk away with your deposit.
2. You back out for no valid reason → seller keeps earnest money
If you decide not to go through with the purchase without a contract-protected reason, the seller will likely keep your earnest money as compensation for lost time and effort.
3. The seller backs out → you get your earnest money back
If the seller cancels the deal (without a reason allowed in the contract), you should get your earnest money back in full. In some cases, you may even have legal grounds to sue for damages.
4. The closing is delayed → money stays in escrow
If closing is pushed back due to title issues, financing delays, or other factors, your earnest money stays in escrow until the sale is finalized.
5. The deal falls through due to an appraisal gap → depends on your contract
If the home’s appraisal is lower than the purchase price (an appraisal gap) and you don’t have an appraisal contingency, you may have to make up the difference or lose your earnest money.