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Writer's picturePaul Linn

What is Earnest Money?

Updated: Mar 18, 2019




Get ready to read a very exciting blog about earnest money!

But for real, your earnest money deposit plays a big role in the home buying process. In short, earnest money shows the seller that you are a ready, willing, and able buyer. It tells them that you are committed to purchasing their home. Your earnest money deposit will go towards your down payment on the day of closing.

Writing an offer without earnest money won't get your very far. It would be like going shopping on Black Friday and finding a T.V you really want and asking the store clerk to hold it for you for about 45 days, and that you promise that you will come back and pay for it then......That store clerk has no way of knowing how serious you are and will end up selling your T.V to the next person in line.

Same happens in Real Estate when purchasing a home. Does that make sense?

Sellers typically will not accept an offer without any type of earnest money deposit.


How much Earnest Money should I deposit?

The standard amount of earnest money you will deposit in Indiana is usually about 1% of the sales price. So if you wrote an offer for $100,000, your earnest money that you would put down would be $1,000. If the market is crazy and its hard to get your foot in the door, sometimes increasing your earnest money up to 2% may show the seller that you are a very serious buyer.

So, increasing your earnest money could possibly put your offer above others.

When writing the check for your earnest money, you will want to check with your lender first. They will more than likely need to see that the check written for the earnest money will come from the same account that you will be using to buy the house.

Everything has to match.

In easier terms, your neighbor can't write a check for you for the earnest money out of his account. That wouldn't fly with your lender!


Who do I make the Earnest Money payable to?

Typically, your earnest money is due within a few days of receiving the accepted offer. You will want to check with your agent to see what you put in the Purchase Agreement when you wrote the offer. In most cases, you will make the earnest money check out to the listing agents brokerage. Sometimes that broker may require that you make it payable to the Title Company.

After you turn in your earnest money, that check will get deposited into an escrow account until the home closes. Once the loan has been cleared to close, you will receive a settlement statement breaking down your debits and credits.

You should get a credit for your earnest money deposit and it will go towards your down payment!

Can you get your earnest money back?

Now you probably want to know, what happens if the deal falls through? Who gets to keep the earnest money? If you read through the purchase agreement, there normally is some hard-coated language in there that that discusses protocol here. Usually, whoever holds the deposit determines who gets to keep the earnest money. You will want to check with your agent to see how refunds are handled and what is written in your purchase agreement.


You can usually get your money back if there are major problems found with the property during the inspection period, and you and the seller can't come to an agreement with the repairs..

If you have any questions, please feel free to contact me. I hope this blog wasn't too boring for you!

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