Earnest Money vs. Down Payment: What Every Buyer Should Know
If you're buying a home, you'll hand over money at two very different points in the process — once when you make your offer, and again when you close. They're not the same thing, they don't do the same job, and only one of them is refundable. Here's how earnest money and your down payment differ, and where a title and escrow company fits into all of it.
What is earnest money?
Earnest money — sometimes called a good faith deposit — is a sum submitted along with your offer to purchase. Its job is simple: it signals to the seller that you intend to follow through.
That signal matters more than most first-time buyers realize. The moment a seller accepts your offer, they take the home off the market. If the deal collapses weeks later, they've lost time, momentum, and often other interested buyers. Earnest money gives them something at risk on your side of the table, which is why competitive markets have made it close to standard practice.
Is earnest money refundable?
Your purchase contract will spell out the deposit amount, but you don't send the funds until the offer is accepted. Expect the check to be deposited promptly — and understand where it goes. The money does not go to the seller. It's held in an escrow account by a neutral third party, typically the title agency handling the transaction, and it stays there until closing.