What Is an Earnest Money Deposit? A Guide for Buyers and Sellers

An earnest money deposit is a good faith payment a buyer makes after a seller accepts their offer on a home. It shows the buyer is serious and gives the seller a reason to take the house off the market.

A neutral escrow holder, never the seller, keeps it until closing.

At closing, the money goes toward the buyer's down payment or closing costs.

Bentley's Real Estate is a Newburyport, Massachusetts brokerage, and our agents guide buyers and sellers across Greater Newburyport through this step on each sale. And it helps to see the whole path the money takes before you write a single check.

How an earnest money deposit works

That path has five stages, starting the day you make an offer and ending at the closing table. The purchase agreement controls each one.

Stage	What happens to the deposit
Offer	The buyer names an earnest money amount in the offer
Offer accepted	The buyer pays the deposit, usually soon after the contract is signed
Under contract	Funds sit in escrow with a title company, real estate attorney, or broker
Closing	The deposit is credited toward the down payment or closing costs
Deal falls apart	The contract decides who keeps the money

The purchase contract spells out how, when, and to whom the escrow holder releases the funds. Read that section before you sign.

And keep the deposit receipt with your closing file.

How much earnest money buyers typically put down

Before any of that begins, you pick a number. Earnest money deposits typically run about 1% to 3% of the purchase price, and some lenders describe 1% to 2% as typical.

Competitive markets can push it higher, and local custom matters most.

Choose a deposit near the top of the range when you are competing for a home and your financing is solid. Choose one near the bottom when you need cash for closing or your timeline has more moving parts.

A bigger deposit can make an offer stand out. It also puts more of your money at risk if you breach the contract.

Larger deposit	Smaller deposit
Signals commitment and funds to close	Keeps more cash free for closing
Can tip a seller choosing between similar offers	Less to lose if a deadline slips
More money tied up in escrow	May look weaker next to rival offers

We help buyers size a deposit that strengthens an offer without risking more than they can afford to lose. It also helps to see how this first check fits with a larger one later.

Earnest money vs. down payment

That larger check is the down payment, due at closing. You pay earnest money weeks earlier, and it usually becomes part of the down payment.

	Earnest money	Down payment
When it is paid	After the offer is accepted	At closing
Who holds it	Neutral escrow holder	Paid as part of the purchase
Refundable?	Sometimes, per the contract	No, once the sale closes
Purpose	Shows good faith	Your equity in the home

Case in point: whatever you put down as earnest money comes off the down payment you bring to closing. That escrow account is separate from the one a lender may set up later for taxes and insurance.

When buyers get earnest money back

All of that assumes the sale closes. When it does not, buyers generally get their deposit back if the deal fell through because of a contingency written into the purchase agreement, or because the seller backed out.

Contingency	What it covers
Home inspection	Major defects turn up during the inspection
Appraisal	The home appraises below the agreed price
Financing	The mortgage loan falls through
Home sale	The buyer cannot sell a current house in time

Refunds usually require both parties to sign a release, and in a dispute the escrow holder may keep the funds until it is resolved.

Fewer contingencies can make an offer more attractive to sellers, while more of them give buyers more protection. We encourage a conversation with an attorney before waiving anything.

When a buyer can lose earnest money

Waiving protections is only one way deposits disappear. A buyer can lose earnest money by breaking the terms of the contract, most often by:

• Walking away for a reason not covered by a contingency
• Missing a contract deadline, such as finishing an inspection on time
• Waiving contingencies and then being unable to close

Your easiest protection is a calendar.

Put each inspection, mortgage, and closing date in it the day you sign.

Where earnest money funds come from

Your lender will be watching too, starting with where the deposit came from.

Lenders verify the source of earnest money.

Buyers should expect to provide recent bank statements showing the funds are theirs. A gift from a family member may be allowed, but not every loan type permits gifted funds, so ask your lender first.

We don't recommend borrowing the deposit through a personal loan.

What earnest money tells a seller

From the seller's side of the table, earnest money is one way to judge how committed a buyer is. A solid deposit paired with a clean financing picture signals a buyer ready to close.

A small deposit with many contingencies calls for a closer read, and we help sellers weigh each offer on its full terms, price included.

Earnest money help in Greater Newburyport

Whichever side you are on, a second set of eyes on the deposit terms helps. Bentley's Real Estate has been the #1 brokerage in Greater Newburyport by market share seven years running, and our 60+ agents work across Newburyport, Amesbury, Newbury, Plum Island, West Newbury, Salisbury, and Rowley.

Customs and rules for earnest money can vary, so confirm the specifics of your contract with your attorney, lender, or tax professional. To talk through your purchase or sale, call us at (978) 572-1200.