You’ve found the one. You’re pre-approved, your offer is ready — and then your real estate agent mentions something called earnest money. Cue the confusion and a quick Google search.

If you’ve never bought a home before, you’re not alone in wondering what this is or why it matters. It’s a common question among first-time buyers. Here’s a breakdown of what earnest money is, how it works, and why it’s an important part of the offer process.

What Is Earnest Money?

Earnest money is a good-faith deposit that a buyer includes with their offer to show they’re serious about purchasing the home. It helps reassure the seller that you’re not just putting in an offer for fun — you’re financially committed and ready to move forward.

Here’s what you need to know:

• It’s typically 1–3% of the purchase price, though this can vary by market. In competitive areas, buyers may offer more to strengthen their offer.
• The money is held in an escrow account by a neutral third party (like a title company or brokerage) until closing.
• If the deal goes through, the earnest money is applied to your closing costs or down payment.
• If the deal falls apart, what happens to the earnest money depends on the contract and whether your contingencies were met.

When Do You Submit Earnest Money?

Earnest money is typically due within a few days of your offer being accepted — not when you make the offer itself. Your real estate agent or broker will give you specific instructions and deadlines, and the timeline is outlined in the purchase contract.

It’s crucial to move quickly and follow instructions carefully. If you miss the deadline, you may be in breach of contract — and that could put your entire deal at risk.

Can You Lose Your Earnest Money?

Yes — but only under specific circumstances. Generally, your earnest money is protected as long as you follow the contract and act within the agreed-upon timelines.

You could lose your deposit if:

• You back out of the deal after your contingency deadlines (like inspection or financing) have passed
• You miss a contractual deadline (such as not submitting documents or deposits on time)
• You default on the contract or fail to close without a valid contingency reason

That’s why working with a proactive real estate agent who tracks these deadlines — and explains them clearly — is so important, especially for first-time buyers.

How Do Contingencies Protect Your Earnest Money?

Contingencies are conditions built into your offer that protect your deposit if something goes wrong. Common examples include:

• Home inspection contingency: If major issues are found, you can negotiate repairs or walk away with your earnest money intact.
• Financing contingency: If you’re unable to get final loan approval, you can back out without losing your deposit.
• Appraisal contingency: If the home appraises for less than the offer amount and you can’t renegotiate, you can cancel the contract.

As long as you act within your contingency periods and communicate with your agent, you’re in good shape.

Still unsure if you’re ready to take the leap? Here’s how to know you’re ready to buy a home.