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
Knowing about Earnest Money helps you budget accurately for your home purchase. Many first-time buyers are surprised by costs beyond the purchase price, and understanding each component prevents unwelcome surprises at the closing table.
When planning your homebuying budget, factor in earnest money early in the process. Ask your lender or real estate agent for estimates specific to your situation and location, since these costs can vary significantly.