How Much Earnest Money Should You Put Down When Buying a Home?

When you're in the market to purchase a home, you may have heard the term "earnest money" and wondered how much you should offer. Understanding earnest money is a crucial step in the home-buying process.

What is Earnest Money?

Earnest money is a deposit made to demonstrate your serious intent to purchase a home. It's like a "good faith" gesture that reassures the seller you are committed to completing the transaction. This money is typically held in an escrow account until the deal is finalized, ensuring both parties are protected.

How Much Should You Put Down?

The amount of earnest money you should put down generally ranges between 1% and 3% of the home's sale price. The exact figure depends on the market conditions and how competitive the housing market is in your area. In a seller's market, where demand exceeds supply, offering a higher amount may help your offer stand out against others. On the other hand, in a buyer's market, a lower earnest money deposit could still be acceptable.

What Happens to Your Earnest Money?

If everything goes according to plan and the purchase moves forward, the earnest money is applied toward your down payment or closing costs. However, if something falls through, like a failed home inspection or issues uncovered during the appraisal, the buyer may be entitled to have their earnest money refunded, as long as it falls within the contingencies outlined in the contract. Make sure you read your contract carefully!

When Can You Lose Your Earnest Money?

While earnest money provides protection for both parties, it’s important to remember that you could lose it if you back out of the sale without a valid reason. For example, if you decide not to proceed with the purchase after agreeing to terms without an inspection failure or other contract contingencies, the seller may be entitled to keep the earnest money as compensation for the time and effort lost. Again, make sure you read your contract carefully!

Depositing Earnest Money

If you would like our firm to hold your earnest money, we accept earnest money in the following forms:

• Wires: Please contact our office to request our wiring instructions.

• Certified check, personal check, or money order made payable to Shipman Miranda Law LLC.

• Earnnest App: Your realtor can provide you with a link through earnnest.com or through the link on our website.

Deciding how much earnest money to put down is a strategic decision that depends on market conditions and your level of commitment to the home you're considering. If you have questions or need assistance with a real estate transaction, the team at Shipman Miranda Law is here to help. 

Feel free to contact us today with any questions or to schedule a consultation!