Your Mortgage: Earnest money – what is it?

Put simply, earnest money is money paid to confirm a contract. In the lending industry, earnest money is part of nearly every single real estate purchase contract. Earnest money tells a seller that a buyer is serious, while also preventing buyers from making offers on several homes at once and taking them each off the market to other potential buyers. Earnest money stays with the transaction and is applied towards the funds required to close. It can also be refunded if either no additional funds are required to close or if something goes wrong with the transaction.

Typically, an earnest money deposit averages about 1-2 percent of the agreed upon sales price. It’s written by either the real estate broker or a title company involved on the sale side of the transaction and generally deposited within the first week or two into an escrow account to be released on the day of closing.