How Much Earnest Money Should I Put Down on a House?

Here are six important points you should take away from this guide:

1. A typical earnest money deposit is 1% to 3% of the home purchase price.
2. But there are no standard rules or requirements for these deposits.
3. The amount of money you put down should reflect local market conditions.
4. A bigger deposit could help you stand out in a multiple-offer scenario.
5. If you back out of the deal for no good reason, you could lose your deposit.
6. Some buyers use contingencies to protect themselves from such losses.

The earnest money deposit is an important part of the offer process when buying a home. In a competitive real estate market, it could make the difference between having your offer accepted, or losing the home to another buyer.

Objective: This guide will help you decide how much earnest money to put down, based on local real estate market conditions and customs.

What Is an Earnest Money Deposit?

An earnest money deposit is a sum of money that a home buyer puts down to show they are serious about purchasing a home. It’s held in escrow by a third party and later applied to the down payment or closing costs.

Don’t confuse this deposit with the down payment on the house. They are two separate things, though both can be applied toward the purchase price. Here’s the difference:

• Down payment: Money that the lender requires you to put toward the purchase.
• Earnest money: Funds submitted to a third-party escrow to show you are sincere.

When you make an offer to buy a house, you want the seller to take your offer seriously. So you might offer a “good faith” deposit toward the purchase price. You are using this money to show the seller you are earnest (or sincere) about buying their house.

If the deal goes through, the deposit will be applied to your down payment and/or closing costs. If it doesn’t go through, the fate of the earnest money deposit will depend on the reason for the breakdown and the wording of the contract.

So we’re talking about money that the buyer pays toward the home purchase in advance, to demonstrate their sincere commitment to the deal. That’s what earnest money is all about.

Deciding How Much to Put Down

Getting back to the question we started with: How much earnest money should you put down when submitting an offer?

There are no hard-and-fast rules here. It can vary from one housing market to the next, based on several factors. The activity level within the local market, and the price range of the property in question, have the biggest influence on earnest-money trends.

Most real estate experts feel that 1% – 3% is a good rule of thumb when making an earnest money deposit. But depending on how competitive your market is, you might want to go above or below this range.

Here’s how much the earnest money deposit would be for different home price amounts, if we use the commonly cited 1% to 3% range.

Home Price	Earnest Money Deposit (1% – 3%)
$300,000	$3,000 – $9,000
$350,000	$3,500 – $10,500
$400,000	$4,000 – $12,000
$450,000	$4,500 – $13,500
$500,000	$5,000 – $15,000
$550,000	$5,500 – $16,500
$600,000	$6,000 – $18,000
$650,000	$6,500 – $19,500
$700,000	$7,000 – $21,000
$750,000	$7,500 – $22,500
$800,000	$8,000 – $24,000
$850,000	$8,500 – $25,500
$900,000	$9,000 – $27,000
$950,000	$9,500 – $28,500
$1,000,000	$10,000 – $30,000

Ask Your Agent About Local Customs

If you’re working with a real estate agent, they should be able to tell you what the norm is for your local area and price range. This can vary from one real estate market to the next. Adhering to local norms and customs can help you avoid losing the home to a stronger offer.

If you try to make a deposit that is well below the average amount for your area (and below what the homeowner is expecting), they might not take your offer seriously. Sellers evaluate every aspect of the offers they receive, and that includes the amount of earnest money being paid.

In a highly competitive real estate market, where sellers typically receive multiple offers, you might want to put down more than 3%. This could help you stand out in a crowded field. But again, you should seek your agent’s advice on the subject.

Why Are They Even Necessary?

Sellers have a lot on the line when they attempt to sell their homes. So they want to make sure that buyers are serious when submitting a purchase offer.

By putting some cash down toward the purchase, in the form of a deposit, you are showing your sincerity.

Earnest money deposits also discourage home buyers from making multiple offers on many different properties, just to “weigh their options.”

When a buyer and seller agree on a certain purchase price for a home, the property is usually taken off the market. When this happens, the seller stops accepting and considering offers from other potential buyers.

Imagine if you were selling your house, and you took it off the market for a couple of weeks only to find out that the buyer had “played you” by doing the same thing with five other properties! It would be a real setback.

The earnest money deposit is basically the buyer’s way of saying: “I am sincere about purchasing this home, and I’m not trying to waste your time.”

A seller’s biggest concern is to take the home off the market after accepting an offer, only to have the buyer pull out at the last moment. It can be a major setback. In this scenario, the forfeited deposit compensates the seller for their inconvenience and possible financial losses.