Costs
Earnest Money
A deposit made by the buyer when submitting an offer on a home, typically 1% to 3% of the purchase price, to show the seller you are serious about buying. Earnest money is held in an escrow account and applied toward your down payment or closing costs at closing. If you back out for a reason not covered by your contract contingencies, you may lose the deposit. On a $300,000 home, earnest money might be $3,000 to $9,000.
Why It Matters
Earnest Money is one of the expenses that can catch homebuyers off guard if they don't budget for it early. Total homebuying costs go beyond the purchase price — closing costs, prepaid items, and ongoing expenses like earnest money can add thousands to your out-of-pocket costs.
The cost of earnest money varies depending on your location, loan type, and specific transaction. Shopping around and negotiating can often reduce these costs significantly. Always ask for a detailed line-item breakdown from your lender or service provider.
Real-World Example
On a $350,000 home purchase, earnest money could range from a few hundred to several thousand dollars depending on your state and lender. Get at least 3 quotes to ensure you're paying a competitive rate for this service.
Pro Tip
Don't assume all costs are non-negotiable. Many fees related to earnest money can be reduced by shopping service providers independently rather than using your lender's default recommendations.