Offers and contracts
Earnest money: how much, who holds it, and how to protect it
Earnest money is often the first large sum a buyer puts at risk. Whether you get it back if the deal fails depends almost entirely on words in your contract, so the time to protect it is before you sign.
Reviewed November 2026 · Written for Buy Home Tips from the sources listed below
Earnest money is a deposit that shows the seller you are serious. Freddie Mac describes it as money placed into an escrow account and held by a designated third party until it is paid out, usually in one of two ways: applied to your down payment or closing costs at closing, or, if you back out of the deal after the seller accepts, potentially forfeited to the seller. The North Carolina Real Estate Commission's question-and-answer brochure, written for buyers, adds a key point: the purchase contract governs what happens to the money.
Earnest money is not the down payment
The deposit is paid early, usually within a few days after the contract is signed. The down payment is paid at closing. If the sale closes, the deposit is credited toward what you owe at closing, so it reduces the cash you bring that day. Your Closing Disclosure shows the deposit as a credit in the cash-to-close calculation.
How much
There is no national rule. Freddie Mac describes typical deposits as 1 to 5 percent of the price, and local customs vary widely. Your agent can tell you what is normal in your market. A larger deposit can make an offer more attractive, but it is also more money at risk if something goes wrong in a way your contract does not cover.
Who should hold it
Most deposits are held by a title or escrow company, a brokerage's trust account or an attorney. The North Carolina commission warns that if a seller, builder or developer holds the deposit and uses it, you risk not getting it back if the transaction fails for reasons such as the seller's bankruptcy, liens or fraud. It also notes that most earnest money is held in non-interest-bearing accounts unless the parties agree otherwise in the contract.
Your contract should state who holds the money, when it must be delivered, and how it is released.
When you get it back
Contingencies are the usual route to a refund. If your contract makes the sale contingent on an inspection, an appraisal or financing, and you cancel properly within that contingency's deadline, the contract normally provides for the deposit to be returned. Some contracts also return it if the seller fails to perform.
The details matter. Each contingency has a deadline, and many contracts require written notice in a specific form. Missing either can turn a refundable deposit into one the seller can claim.
When buyers lose it
Buyers risk the deposit when they back out for a reason the contract does not cover, miss deadlines, fail to deliver the deposit on time, or otherwise breach the contract. The North Carolina brochure notes that failing to make the required payment, or a deposit check that bounces, can itself be treated as a breach. Disputes over who is entitled to the deposit are usually resolved under the contract's terms and state law, sometimes requiring both parties to sign a release.
Wire fraud and deposits
Deposits are a target for fraud because they move by wire soon after a contract is signed. Never trust wiring instructions that arrive by email alone. Call the title company or attorney at a phone number you find independently, confirm the instructions, and confirm receipt afterward. The site's long read on wire fraud explains what to do if something looks wrong.
Use the calculator
Enter your offer price and a deposit percentage or flat amount to see the dollars at stake. Then read your contract's deposit and contingency sections with your agent or attorney and put each deadline on your calendar.
Mini calculator: earnest money in dollars
Turn a deposit percentage into dollars and see how much of it would come back to you as a credit at closing.
Your contract, not this sheet, decides when the deposit is due, who holds it and when it can be kept by the seller.
Protect your deposit
- Confirm in the contract who holds the deposit and that it goes into an escrow or trust account.
- Note the deadline to deliver the deposit and deliver it on time.
- Verify wiring instructions by phone at a known number before sending money.
- Put every contingency deadline on your calendar with a reminder days ahead.
- Cancel in writing, using the contract's required method, if you exercise a contingency.
- Keep receipts showing when and to whom the deposit was paid.
Questions buyers ask
How much earnest money should I put down?
There is no federal rule. Freddie Mac describes typical deposits as 1 to 5 percent of the price, and local practice varies. A larger deposit can make an offer stronger but puts more money at risk if you breach the contract.
Who holds earnest money?
Usually a neutral third party such as a title or escrow company, a real estate brokerage's trust account or an attorney. North Carolina's real estate commission notes that letting a seller or builder hold the deposit carries the risk that they cannot return it.
Is earnest money part of the down payment?
It is usually credited toward your down payment or closing costs at closing, so it is not an extra cost on top of them if the sale closes.
When can I lose my earnest money?
If you back out for a reason the contract does not allow, miss a contingency deadline, or fail to perform under the contract, the seller may be entitled to keep it, depending on the contract terms.
Sources checked for this page
- North Carolina Real Estate Commission: earnest money questions and answers
- Freddie Mac: what is earnest money and how does it work
- 40 CFR 745.110: lead evaluation period for pre-1978 homes
Checked November 2026. Programs and limits change; confirm with the source before you rely on a figure.