Understanding earnest money deposits: how much to put down and when it’s refundable

Written by Samantha SheltonNMLS 1647301Updated September 2026

Home buyer sending an earnest money deposit by bank transfer from her kitchen table

An earnest money deposit is the good-faith money you put up after a seller accepts your offer, and it typically runs 1% – 3% of the purchase price, roughly $3,000 – $9,000 on a $300,000 home. The money never goes to the seller. A neutral third party holds it, usually a title or escrow company or the listing broker’s trust account, until the sale closes.

At closing the deposit returns to you as a credit on the Closing Disclosure’s “Deposit” line, cutting your cash to close dollar for dollar. You get it back if you cancel in writing inside a live contingency deadline, and you generally forfeit it if you walk for a reason your contract doesn’t cover.

Learn how earnest money deposits work, including how much to offer, who holds the funds, when the deposit is refundable, and how to send it safely, or start with our Home Buying guide.

Key takeaways:

Typical deposits run 1% – 3% of the purchase price: Across Align Lending’s broker network that’s the customary range on Michigan offers about $3,000 – $9,000 on a $300,000 home.
The deposit is credited back to you at closing: Federal rules put it on the Closing Disclosure’s “Deposit” line as money already paid on your behalf, and you see that number at least 3 business days before closing.
Contingencies are what make earnest money refundable: 3 deadlines control almost every refund, inspection, appraisal, and financing, and a missed one is the most common way buyers lose a deposit.

What is an earnest money deposit?

An earnest money deposit is a sum a buyer places with a neutral third party after an offer is accepted, as evidence the buyer intends to complete the purchase. A seller who accepts your offer takes the home off the market and turns other buyers away, so the deposit answers a fair question: what happens to the seller if you change your mind?

Three things set it apart from every other check you write:

It’s held, not spent: The funds sit with a neutral party until the contract closes or terminates.
It’s yours until you breach: It becomes the seller’s money only if you fail to perform under terms you signed.
It’s not an extra expense: At closing it’s applied to your down payment and closing costs.

The deposit is due on the schedule your purchase agreement sets, commonly within a few business days of acceptance, the contract, not local custom, controls that deadline. Our guide to the home buying process shows where it lands in the timeline.

Earnest money vs. down payment: what’s the difference?

Earnest money is a deposit you make at the start of the contract; a down payment is the equity you bring at the end. They meet at the closing table, where the deposit is credited toward both your down payment and your closing costs.

Feature	Earnest money deposit	Down payment
When you pay it	Within days of acceptance, on the deadline your contract sets	At closing, as part of your cash to close
Typical amount	1% – 3% of the purchase price	0% – 20% or more, depending on the program
Who holds it	A neutral escrow or title company, or a broker’s trust account	Delivered to the settlement agent at closing
Can you lose it?	Yes, if you breach or miss a contingency deadline	No. You don’t pay it unless the sale closes

A larger deposit doesn’t increase what the home costs you; it moves money forward in time. Put up $9,000 on a $300,000 purchase with 5% down and you still owe $15,000 in down payment, $9,000 of it already paid.¹ See how to budget for closing costs for the rest of your cash to close.

How much earnest money should you put down?

Start at 1% – 3% of the purchase price and let local competition move you inside that range. There’s no legal minimum and no federal rule setting the amount. It’s negotiated in the contract, and a bigger deposit is the cheapest way to create a competitive offer without raising your price. It costs nothing extra if you close, and everything you put up if you breach.

Market condition	Typical deposit	Signal to the seller
Balanced market, home sitting a few weeks	About 1% ($3,000 on a $300,000 home)	You’re a real buyer following local custom.
Well-priced listing, multiple offers expected	2% – 3% ($6,000 – $9,000 on a $300,000 home)	You have real money at risk and intend to close.
Bidding war or tightened contingencies	Top of the local range, occasionally above it	Strong commitment, and a deposit underwriting will ask you to document.

What a large deposit does to your loan file

Going above the local norm carries an underwriting consequence most buyers don’t hear about until documents are due. On FHA loans, the lender must verify the amount and source of your earnest money whenever the deposit exceeds 1% of the sales price or looks excessive given your savings history, proven with a canceled check, a certification from the deposit holder, or a bank statement covering it.

Conventional financing works the same way. Fannie Mae treats earnest money as an acceptable source of funds for down payment and closing costs, verifies receipt by canceled check or written statement from the deposit holder, and expects two months of bank statements showing an average balance that could support it. Deposits exceeding the amount customary for the area get closely evaluated.

So write the deposit from a seasoned personal account, and tell your loan officer the number. For how it stacks against other concessions, see navigating multiple-offer situations and buying in a competitive market.

Who holds your earnest money deposit?

A neutral third party holds it, most often the title or escrow company handling the closing, and sometimes the listing broker’s trust account under state licensing rules. It should never be paid directly to the seller, and never sit in an agent’s operating account. Federal rules put that money on the Closing Disclosure’s “Deposit” line as an amount already paid on your behalf.

One confusion worth clearing up: the escrow account holding your earnest money is not the escrow account attached to your mortgage. According to the CFPB on escrow accounts, that second account, also called an impound account, is set up by your lender and funded from your monthly payment to cover property taxes and insurance. Same word, different account. Our explainer on the role of escrow in home buying covers both, and how to choose a title company covers vetting whoever holds your money.

When do you get your earnest money back?

You get it back when you cancel in writing, for a reason your contract allows, before that contingency’s deadline expires. Every refund dispute comes down to those three conditions, and the deadline is the one buyers blow.

You generally get the deposit back when…	You generally forfeit the deposit when…
The inspection finds problems and you cancel in writing inside the inspection period.	The inspection period expires and you cancel afterward.
The appraisal lands below the contract price and you kept an appraisal contingency.	You waived the appraisal contingency and can’t cover the gap in cash.
Your lender denies the loan while the financing contingency is still live.	The financing deadline passes, or you never applied.
The seller breaches or can’t deliver clear, marketable title.	You change your mind, or miss a deadline you agreed to.

The three contingencies that protect your deposit

Three clauses do almost all of the protecting, and each is a dated window rather than an open-ended right. Read contingencies in home offers and home purchase contingencies for how they’re written and how they interact.

Inspection contingency: A fixed number of days to inspect and to cancel or renegotiate. Order the inspection the day the contract is signed, the home inspection checklist for buyers shows the ground to cover, and negotiating repairs after a home inspection is the alternative to walking.
Appraisal contingency: Lets you cancel or renegotiate if the appraised value lands under the contract price, since your lender lends against the lower of the two. Learn the home appraisal process and how to appeal a low appraisal first.
Financing contingency: Lets you recover the deposit if your loan is denied inside the window. A file that moves fast keeps this one from expiring while underwriting works.

How FHA and VA rules protect your deposit on a low appraisal

Government financing adds deposit protection conventional contracts don’t include by default. If an FHA borrower doesn’t receive the lender’s statement of appraised value before signing, the contract must be amended before closing to add an amendatory clause stating the purchaser is not obligated to complete the purchase or to incur any penalty by forfeiture of earnest money deposits unless given a written statement of appraised value of at least the stated amount, while keeping the option to proceed anyway.² It isn’t required on HUD real-estate-owned sales, FHA 203(k) mortgages, or sales where the seller is a government agency or a mortgagee disposing of REO, among other exceptions.

VA financing carries a parallel escape clause. Where a veteran signed before receiving notice of VA’s reasonable value, federal regulation requires language stating the purchaser shall not incur any penalty by forfeiture of earnest money, or otherwise be obligated to complete the purchase, if the contract price exceeds the reasonable value VA established.³ Ask your loan officer to confirm the clause is in your contract before the appraisal is ordered.

What happens when the seller won’t release the money

A cancellation doesn’t automatically move the money. Escrow holders are neutral by design, so they typically won’t release a disputed deposit without a mutual release signed by both parties or a court order. That’s why the written notice matters: a clean, timely, contract-based cancellation makes it easy for a seller’s agent to recommend signing the release.

How to submit an earnest money deposit

Send the deposit to the escrow holder named in your contract, by the contract’s deadline, using a method you can prove. Four steps cover it:

Confirm who the escrow holder is: Match the name on your payment to the party named in the purchase agreement, exactly.
Pay from a documented account: Use a personal account you can produce statements for, since your lender will ask for proof of the payment and its source.
Get a receipt the same day: Written confirmation the funds hit trust or escrow is often the exact document underwriting requests weeks later.
Calendar every contingency deadline: The day the deposit clears, put your inspection, appraisal, and financing dates on the calendar with an early reminder.

Wire fraud warning: Criminals monitor real estate email threads and send fake wiring instructions timed to the day your deposit is due. The CFPB’s guidance is blunt, confirm instructions with your trusted representatives before wiring, and avoid using phone numbers or links contained in an email. Call the title company at a number you looked up independently, verify the details out loud, and never accept a last-minute change without a call back. If money does go out, ask your bank for a wire recall immediately, then file a complaint with the FBI’s Internet Crime Complaint Center. The CFPB tools for the home buying process include a closing checklist for recording verified contacts in advance.

Our guide to preparing for a home closing covers what else to verify that day, and why title insurance matters covers what the same company does for you afterward.

What Michigan buyers should know

Michigan routes earnest money through licensed intermediaries, and state law gives that arrangement teeth.

Your deposit is not your agent’s money: Under Michigan’s Occupational Code, a real estate licensee who does not account for or does not remit money that comes into the licensee’s possession and belongs to others is subject to penalties under Article 6. Broker-held deposits belong in a separate trust or escrow account.
Michigan deposits track the national range: Across Align Lending’s broker network, Michigan offers generally carry earnest money of 1% – 3%, about $3,000 – $9,000 on a $300,000 home, with Metro Detroit’s competitive price bands at the top of that range.
Disputed deposits sit still: When a Michigan buyer and seller disagree over the money, the escrow holder typically won’t release it without a mutual release signed by both parties or a court order. Expect that release to be a separate document you both sign.

Our guide to state-specific home buying regulations covers the Michigan rules sitting on top of the federal ones.

How Align moves your purchase to the closing table

Over the last 12 months, Samantha's loans averaged under 14 days from application to clear to close, across more than 100 loans. Your closing date is set by your purchase agreement. Her job is to have your loan ready well before it.

She handles your file herself, with a processor supporting her behind the scenes. You always know who to call, and the person who answers knows your goals.

Build your homebuyer game plan

Sources: Align Lending loan records, 12 months to October 2026.

FAQ: Earnest money deposits

Here are answers to common questions about earnest money deposits.

Is earnest money the same as a down payment?

No. Earnest money is a deposit made shortly after your offer is accepted to show commitment, and it is held in escrow. The down payment is the larger sum you bring at closing. The two connect at the end: your earnest money is credited toward your down payment and closing costs, so it reduces what you wire on closing day rather than adding to it. Our guide to closing costs for buyers breaks down everything else in that final number.

Is earnest money refundable?

It is refundable when you cancel in writing within an active contingency period for a reason the contract permits, such as a failed inspection, a low appraisal or denied financing. It is generally not refundable if you miss the deadline, waive the contingency, or simply change your mind. Escrow usually requires a signed mutual release before returning funds. Before dropping a protection to win a bid, read the risks of home inspection waivers.

Who holds the earnest money deposit?

A neutral third party holds it, most often the title or escrow company, or the listing broker’s trust account under state licensing rules. It should never be paid directly to the seller. Always pay by wire or check to the escrow holder, verify wiring instructions by phone using a number you looked up independently, and keep the receipt. Where an attorney runs the settlement, the closing attorney’s role includes holding and disbursing those funds.

How much earnest money should I offer?

Start with 1% to 3% of the purchase price and adjust for competition. A larger deposit signals seriousness without raising your price, which can be a strong lever in a multiple-offer situation. Only increase it if your contingencies are solid, because a bigger deposit means more money at risk if a deadline slips. Our guide to handling a bidding war covers when to spend that lever and when to hold it.

The bottom line on earnest money deposits

Earnest money deposits typically run 1% – 3% of the purchase price, held by a neutral escrow or title company rather than paid to the seller. At closing the money returns to you as a credit on the Closing Disclosure’s “Deposit” line, applied to your down payment and closing costs, so it lowers your cash to close instead of adding to it. You keep the right to a refund by cancelling in writing inside a live inspection, appraisal, or financing deadline, and lose it by letting a date pass.

If you’re ready to write an offer with real money behind it, talk to Align Lending, we’ll shop your scenario across our lender network, show you the loan options side by side, and keep your financing contingency on schedule so your deposit stays protected. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your deposit amount, down payment, and cash to close depend on your purchase agreement, your loan program, and your application. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA amendatory clause requirements are set by HUD and are subject to change. Return to text.

3. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA escape clause and reasonable value requirements are set by the Department of Veterans Affairs and are subject to change. Return to text.

Sources: earnest money deposit range of 1% – 3% of the purchase price and observed Michigan deposit amounts, Align Lending broker network purchase-offer data. Earnest money as an acceptable source of funds for down payment and closing costs, verification of receipt by canceled check or written statement from the holder of the deposit, two-month average balance support, and close evaluation of large deposits and deposits exceeding the amount customary for the area, Fannie Mae Selling Guide B3-4.3-09. FHA requirement that the mortgagee verify and document the amount and source of an earnest money deposit exceeding 1 percent of the sales price or excessive relative to the borrower’s savings history, and acceptable documentation, U.S. Department of Housing and Urban Development, Handbook 4000.1. FHA amendatory clause language and timing, and the exception for HUD real-estate-owned sales and 203(k) mortgages, U.S. Department of Housing and Urban Development, Handbook 4000.1. VA escape clause protecting earnest money where the contract price exceeds VA’s established reasonable value, 38 C.F.R. § 36.4303(k)(4). Closing Disclosure “Deposit” line covering any amount paid to the seller or held in trust or escrow under the terms of the sale agreement, disclosed as paid already by or on behalf of the borrower, 12 C.F.R. § 1026.38(j)(2)(ii); the corresponding Deposit row in the Calculating Cash to Close table stated as a negative number, 12 C.F.R. § 1026.38(i)(5)(ii). Closing Disclosure delivered three business days before closing, and mortgage escrow or impound accounts funded from monthly payments to pay property taxes and insurance, Consumer Financial Protection Bureau. Guidance to confirm wiring instructions with trusted representatives, to avoid phone numbers or links in an email, to request a wire recall from your bank, and to file a complaint with the FBI’s Internet Crime Complaint Center, Consumer Financial Protection Bureau. Michigan penalties for a real estate licensee that does not account for or does not remit money coming into the licensee’s possession that belongs to others, Michigan Occupational Code, MCL 339.2512.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Purchase agreement terms, contingency deadlines, deposit forfeiture, and escrow release procedures are governed by your contract and by state law, and they vary. Consult a licensed real estate professional or attorney in your state about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.