Earnest Money: How Much to Put Down and Refund Rules

The first check you write on a house is not the down payment. It is the earnest money, and it leaves your account days after the seller says yes, long before a lender approves the loan or an inspector looks at the roof. The Consumer Financial Protection Bureau says to make your offer contingent on financing and a satisfactory inspection for exactly this reason: if either falls through, you are not stuck buying the home, and your deposit comes back.

This guide shows the math: what the deposit is and who holds it, how much to put down in each of the ten states we cover, the eight ways a deal can die and what happens to your money in each, the contingency deadlines that protect it, how it comes back at closing, and the state laws in California, Texas, Florida, and New York that change the rules. First, a short video explainer.

1. What Earnest Money Is and Who Holds It

Quick Answer: Earnest money is a good-faith deposit you pay after a seller accepts your offer, usually within one to three business days. A neutral third party, typically a title company, escrow company, or the listing broker, holds it in a trust account until closing, when it is credited toward your purchase. It is separate from the loan itself, which we cover in how mortgages work from first loan to final payment.

The deposit answers one question for the seller: will this buyer actually show up at closing? Taking a home off the market for 30 to 45 days costs the seller other offers, so the deposit is the buyer’s skin in the game. Four things to know:

• Who holds it. Never the seller directly. The contract names an escrow agent, and the money sits in that agent’s trust account. In Florida, for example, state law requires a broker to place any deposit in escrow immediately with a title company, bank, or the broker’s own trust account.
• When it is due. The contract sets the deadline, and it is short. Texas’s standard resale contract, for instance, gives the buyer only a few days after the effective date.
• How you pay it. Wire transfer or cashier’s check to the escrow agent, never cash and never to an individual. Confirm wiring instructions by phone using a number you already have, because wire fraud targets this exact payment.
• Where it ends up. Close, and it is subtracted from what you owe. Cancel under a contingency, and it is returned. Default, and the seller keeps it.

One distinction matters. The deposit is not a down payment; it is an advance on money you would bring to closing anyway. The down payment is the larger amount that sets your loan size, and the deposit is the first slice of it, paid early.

2. How Much Earnest Money to Put Down in 2026, State by State

Quick Answer: Plan on 1% of the purchase price in a slow market, 2% in a balanced one, and 3% when you are competing against other offers. The National Association of Realtors puts the normal range at 1% to 10%, with 3% common in the priciest markets. Get your pre-approval letter first, because a strong letter lets you offer a smaller deposit.

No law sets the amount. It is a negotiation, and the right number depends on the local price and how many other buyers want the house. The table applies the three common percentages to the typical home value in each state DollarVisor covers, using the Zillow Home Value Index for July 2026 as published by the Federal Reserve Bank of St. Louis (FRED).

Three rules of thumb for picking a number inside that range:

• Go low when you have leverage. A home that has sat for 60 days, a seller who needs to move, or a slow winter market: 1% is enough to be taken seriously.
• Go high when you are one of several offers. A larger deposit signals you will not flake. In bidding wars, 3% and sometimes more is the norm in coastal California and the New York metro.
• Never put down more than you could afford to lose. Contingencies protect you only until their deadlines. After that the money is at risk.

3. Is Earnest Money Refundable? 8 Ways a Deal Dies and What Happens to Your Deposit

Quick Answer: Earnest money is refundable when you cancel for a reason your contract lists as a contingency, before that contingency’s deadline, with written notice. That covers a failed inspection, a loan denial, a low appraisal, a title problem, or a seller who does not perform. It is not refundable when you change your mind, miss a deadline, or cannot close after waiving the protection. If the appraisal comes in low, our guide to the appraisal gap shows your options before you cancel.

The word “refundable” hides the real rule: the deposit follows the contract. The table sorts the eight most common ways a purchase falls apart by who keeps the money.

Two details trip up buyers most. First, “in writing” is not a formality. A phone call to your agent saying you want out does not stop the clock; a signed termination notice delivered before the deadline does. Second, a refund usually needs both parties to sign a release before the escrow agent can pay it out. A seller who disagrees can hold it up, which is why the state dispute rules in Section 6 matter.

4. The Contingency Clock: When Your Earnest Money Stops Being Refundable

Quick Answer: On a typical 30-day contract, the inspection window closes around day 7 to 10, the appraisal contingency around day 14 to 21, and the financing contingency around day 21 to 30. Each deadline that passes removes one reason you could cancel and keep your deposit. By the final week it is fully at risk. Lock your rate inside that same window; our mortgage rate lock guide explains why the lock period should match the closing date.

Think of the deposit as refundable on a timer. The timeline follows a common 30-day purchase and shows what protects the money at each stage. Your contract sets the actual dates, and they are negotiable.

Risk rises in steps, not all at once. The cheapest time to walk away is the first ten days, when an inspection can end the deal for almost any reason. The most expensive is the last ten, when only a seller’s failure gets your money back. Ask for a longer inspection window on an older home, and never let a financing contingency expire before your lender has issued a clear-to-close.

5. Earnest Money at Closing: How the Deposit Comes Back to You

Quick Answer: At closing, the escrow agent applies your deposit to the total you owe. Federal mortgage rules require the Closing Disclosure to show it as a line item and subtract it from the amount you bring, per the CFPB’s Regulation Z, section 1026.38. On a $350,000 home with 10% down and a $7,000 deposit, you wire about $42,000 instead of $49,000. The rest of that total is covered in closing costs explained.

Buyers sometimes expect a refund check for the deposit at closing. That is not how it works. The money is already sitting with the closing agent, so it is simply counted as paid. The bars below show the flow on our example home.

Seller credits, lender credits, and any option fee you paid in Texas are subtracted the same way. If your Closing Disclosure does not show the deposit, stop and ask before you wire anything. A missing credit is the most common closing-day error involving the deposit, easy to fix before you sign and hard to fix after.

6. State Rules That Change Your Deposit Risk: California, Texas, Florida, New York

Quick Answer: Four of our states treat earnest money differently. California caps what a seller can keep at 3% of the price on an owner-occupied home. Texas splits the deposit from a small option fee that buys an unrestricted right to cancel. Florida gives brokers a legal process for disputed deposits. New York custom asks for a much larger deposit at contract signing. Loan type changes the math too, as our FHA vs conventional comparison shows.

Most states leave the deposit entirely to the contract. These four add rules or customs worth knowing before you sign:

• California: the 3% ceiling. Under Civil Code section 1675, a liquidated damages clause on a home of up to four units that the buyer plans to live in is valid up to 3% of the purchase price. Above 3%, the seller must prove the amount is reasonable. The clause must be separately initialed, so read the box before you sign it.
• Texas: the option fee is the real escape hatch. The Texas Real Estate Commission explains that paying an agreed option fee gives you the unrestricted right to terminate for any reason during the option period, with written notice. The deposit is separate and refundable if you cancel inside that window. Skip the fee and you lose that right.
• Florida: a legal process when the deposit is disputed. Under Florida Statutes section 475.25(1)(d), a broker holding a contested deposit must notify the Florida Real Estate Commission and use one of four routes: an escrow disbursement order, arbitration, a court filing, or mediation completed within 90 days. The same law lets the broker return the money without any of that when a buyer in good faith fails the financing clause.
• New York: bigger deposits, attorney-driven contracts. By long-standing custom in the New York metro, the deposit paid at contract signing is far larger than the 1% to 3% typical elsewhere, and attorneys, not agents, negotiate the contingencies. Have your attorney confirm the exact refund triggers in writing before you send the money.

In Pennsylvania, Illinois, Ohio, Georgia, North Carolina, and Michigan, the standard association contract form and its contingency deadlines do the work. Read the default clause on your state’s form, because that paragraph, not state law, decides who keeps the deposit.

7. How to Protect Your Earnest Money: 6 Moves Before You Sign

Quick Answer: Keep the inspection, appraisal, and financing contingencies unless you can afford to lose the deposit; calendar every deadline; send the money only to the named escrow agent after verifying wire instructions by phone; and cancel in writing before the clock runs out. Settle your choice between an ARM and a fixed-rate loan before you apply, because switching programs mid-contract can push approval past the financing deadline.

The buyers who lose earnest money rarely lose it to a bad house. They lose it to a missed date, a waived clause, or a wire sent to the wrong account. Six habits prevent nearly all of it:

• Keep the financing contingency, even with a pre-approval. A pre-approval is not a commitment. Job changes, new debts, and appraisal problems can all sink a loan after the offer is accepted.
• Negotiate the inspection window, not just the price. Ten days beats seven on an older home, and the extra days cost the seller nothing.
• Write the deadlines down the day you sign. Count business days versus calendar days exactly as the contract defines them, and set reminders two days ahead of each.
• Verify wire instructions by phone. Call the title company at a number from its website, not from the email, before every transfer. A fraudulent wire is not covered by any contingency.
• Cancel in writing, on the form, before the deadline. A text to your agent is not notice. Sign the termination form and get delivery confirmed.
• Get the release signed before you move on. A refund needs the seller’s signature on a release in most states. Ask for it the day you cancel, while the seller still wants the home back on the market.

8. The Bottom Line

Quick Answer: Put down 1% to 3% of the price as earnest money, more only when you are competing and can afford the loss. Keep every contingency you can, cancel in writing before each deadline if you must, and confirm the deposit shows as a credit on your Closing Disclosure. Do that and the deposit is never a cost, only an early payment on a home you end up owning.

Our pick for most 2026 buyers is a 2% deposit paired with a ten-day inspection window and a financing contingency that runs to within a few days of closing. That is enough to be taken seriously in every state we cover, and it keeps the money refundable for most of the contract. Go to 3% only in a multiple-offer situation, and waive a contingency only if losing the deposit would not change your life.

That is how DollarVisor approaches every home-buying question: the math shown line by line, state by state, with no lender or agent paying for placement. Our loans hub covers the rest of the path, from pre-approval to payoff.

9. Frequently Asked Questions

1. How much earnest money is normal in 2026?

Most buyers put down 1% to 3% of the purchase price, inside the wider 1% to 10% range the National Association of Realtors describes. On the typical home that is about $3,000 to $9,000 in Texas and $7,700 to $23,200 in California. Competitive markets push toward 3%, and the New York metro customarily asks for far more at contract signing.

2. Is earnest money refundable if I change my mind?

Only while a contingency still lets you cancel. Inside the inspection window, or the Texas option period, you can usually walk for any reason with written notice and get the deposit back. Once the contingency deadlines pass, changing your mind is a buyer default, and the seller keeps the money under the liquidated damages clause.

3. What happens to earnest money if my loan is denied?

If your contract has a financing contingency and the denial arrives before its deadline, you cancel in writing and the deposit is returned. In Florida, state law lets the broker return it without a dispute process when a buyer fails the financing clause in good faith. If you waived the contingency or the deadline passed, the seller can keep it.

4. Does earnest money count toward the down payment?

Yes. The deposit is credited against everything you owe at closing, which includes the down payment, closing costs, and prepaid items. On a $350,000 home with 10% down and a $7,000 deposit, you bring about $42,000 to closing instead of $49,000. It appears as a “Deposit” line on the Closing Disclosure.

5. Who holds earnest money, and can the seller spend it?

A neutral escrow agent holds it, usually a title company, escrow company, attorney, or the listing broker’s trust account. The seller never receives it before closing, and in states like Florida a broker must place it in escrow immediately. It is released only when the sale closes, when both parties sign a release, or by a court or commission order.