Earnest money often causes confusion for buyers, so here's a general, plain-language explanation.
What it is
Earnest money is a deposit a buyer typically submits shortly after a purchase agreement is signed, showing they're serious about moving forward with the purchase.
Where it goes
Earnest money is generally held by a neutral third party, such as a title company or escrow agent, rather than going directly to the seller.
How it's applied
At closing, earnest money is typically credited toward the buyer's down payment or closing costs, subject to the terms of the contract.
What can happen to it
Depending on the contract terms and contingencies, earnest money may be refundable or non-refundable in certain circumstances. Because this varies by contract, it's important to read your agreement carefully and ask questions before signing.
This article is general information only. For specific questions about how earnest money applies to your contract, Faith recommends reviewing your agreement closely and consulting a real estate attorney if needed.