📍 The contract is signed. Now it’s time to take care of your earnest money deposit.
This is one of the first deadlines you may have once you’re under contract.
The Short Answer
Earnest money is a good-faith deposit that demonstrates you’re serious about purchasing a property. If the sale closes, the money is typically applied toward your closing costs, down payment, or other amounts due at closing. What happens to the earnest money depends on the terms of the purchase agreement.
Earnest Money Explained
Once your offer has been negotiated and accepted, one of the first financial steps may be providing the earnest money required by your contract.
If you want a quick refresher on how you got here, you can revisit Stop 5: Negotiate the Contract.
Earnest money is not an extra fee. It is a good-faith deposit that demonstrates your commitment to purchasing the property.
Earnest money is one way buyers show they are serious about moving forward with a purchase agreement.
What Is Earnest Money?
Earnest money is a deposit a buyer provides after a seller accepts an offer.
Think of it as a sign of good faith. It lets the seller know you’re serious about purchasing the property and intend to move forward according to the terms of the contract.
The funds are typically held in an escrow or trust account by a neutral third party until closing or until the contract is otherwise resolved.
Is Earnest Money the Same as a Down Payment?
No.
This is one of the most common misconceptions.
Earnest money is not an additional cost. If the transaction closes successfully, the earnest money is typically credited toward your closing costs, down payment, or other amounts due at closing.
How Much Earnest Money Do I Need?
There isn’t one standard amount of earnest money, and Mississippi law does not require a specific amount.
Like many terms of a real estate contract, the amount of earnest money is negotiable between the buyer and seller.
The amount offered often depends on several factors, including:
- The purchase price
- Current market conditions
- The strength of the offer
- Local market customs
- What the buyer and seller agreed to during negotiations
We’ll help you understand what your contract requires and what amount was agreed upon in your transaction.
How Do I Pay Earnest Money?
Depending on who is holding the funds, acceptable payment methods may include personal check, cashier’s check, money order, electronic payment, or another approved method.
We’ll explain how much is due, where it needs to go, when it is due, and which payment methods are accepted.
Is Earnest Money Refundable?
It depends on the terms of the purchase agreement.
Many contracts include contingencies or provisions related to financing, inspections, appraisal, title, and other matters.
If a contract is terminated according to its terms, the buyer may be entitled to receive their earnest money back. If a buyer fails to comply with the contract, the earnest money may be at risk.
RealTeam Insight
Every transaction is different. This is why it’s so important to understand the earnest money provisions, deadlines, and other requirements in your own contract.
Why Is Earnest Money Important?
Earnest money helps demonstrate that a buyer is committed to purchasing the property.
It also helps both buyer and seller move forward in good faith while the transaction progresses toward closing.
The Bottom Line
Earnest money isn’t something to fear. It’s simply one part of the home-buying process.
When your offer becomes a contract, we’ll remind you of the earnest money amount and deadline, explain where and how it needs to be delivered, and help you understand what your contract requires.
🚏 Before We Keep Moving...
Here are a few questions buyers commonly have about earnest money.
💰 Is earnest money an extra fee?
No. If the transaction closes successfully, earnest money is typically credited toward your closing costs, down payment, or other amounts due at closing.
💳 How much earnest money will I need?
There is not one standard amount. The amount is negotiable and depends on the purchase price, market conditions, strength of the offer, local customs, and what the buyer and seller agree to in the contract.
🔒 Who holds the earnest money?
The funds are typically held in an escrow or trust account by a neutral third party until closing or until the contract is otherwise resolved.
🔄 Will I get my earnest money back if the transaction does not close?
It depends on the terms of the purchase agreement and why the transaction ended. If the contract is terminated according to its terms, the buyer may be entitled to a refund. If the buyer fails to comply with the contract, the earnest money may be at risk.
⏰️ When is earnest money due?
The deadline is stated in your purchase agreement. We’ll help you keep track of the amount, deadline, delivery instructions, and accepted payment method for your transaction.
📍 Mile Marker
Once you’re under contract, the little details start to matter.
Earnest money is one of the first pieces to handle, and we’ll help make sure you know what needs to happen and when.