Earnest Money
Also known as Earnest Money Deposit, EMD
A good-faith deposit you put down when making an offer to show you're serious about buying.
In plain English
Earnest money is a deposit, usually 1%–3% of the purchase price, held in escrow after your offer is accepted. If the deal closes, it's applied toward your down payment or closing costs; if you back out for a reason not covered by your contingencies, you may forfeit it.
Understanding what does and doesn't let you keep your earnest money is one of the most important parts of reading a purchase agreement before you sign it.
Worked example
On a $400,000 offer with a 2% earnest money deposit, you'd wire $8,000 into escrow shortly after your offer is accepted. It's credited toward your down payment and closing costs at closing, not an extra cost on top of them.
Ask your agent exactly which contingencies protect your earnest money in this specific contract, and the deadline for each one, since missing a contingency deadline can forfeit your deposit even if you later back out for a covered reason.
Buyers sometimes treat earnest money as a separate fee. It's not, it's an early part of the purchase price, held in escrow and applied to what you already owe at closing.
Where you'll run into it
Guides and tools on TheBuyingPath that cover earnest money in context.
Related terms
Sources
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