What is earnest money?

Earnest money is a deposit a home buyer puts down after the seller accepts an offer. It shows the buyer is serious. A neutral party holds it until closing, when it counts toward the down payment and closing costs. On a $500,000 home, a 1% deposit is $5,000.

The deposit gives the seller some protection for taking the house off the market. If the buyer backs out for a reason the contract does not allow, the seller may be entitled to keep it. If the deal falls apart under a contingency, such as a failed inspection or a denied loan, the buyer usually gets it back.

Amounts commonly run 1% to 3% of the price, though local custom and the contract set the real number. Try the earnest money calculator with your price, or read how much earnest money to put down.