Can You Get Your Earnest Money Back at Closing?

When buying a home, you’ll likely come across the term earnest money – a deposit that shows the seller you’re serious about the purchase. But what actually happens to that money once the deal closes? Does it go toward your down payment? Do you get it back? Or does the seller keep it?

Understanding how earnest money works can help you feel more confident as you move through the homebuying process. This Redfin article will break down exactly what happens to your earnest money at closing, and what to expect in different scenarios.

What is earnest money?

Earnest money is a deposit you make after your offer on a home is accepted to show the seller that you’re serious about buying. Think of it as a good-faith payment that tells the seller you’re committed. 

This deposit is usually between 1% and 3% of the home’s purchase price, but the amount can vary based on the local market and the agreement between you and the seller.

The earnest money is typically held in an escrow account – a neutral third party, such as a title company or real estate brokerage, holds onto the funds until the sale is finalized. This ensures that neither the buyer nor the seller can access the money prematurely, protecting both parties during the transaction.

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Deciding between renting or buying your next home?

Compare the costs of renting vs buying and find a lender to secure your mortgage.

What happens to earnest money at closing?

At closing, your earnest money doesn’t just disappear, it gets applied toward the costs of purchasing the home. Typically, this means:

• It can be credited toward your down payment. If you’re making a down payment on the home, the earnest money will be deducted from what you owe.
• It can cover part of your closing costs. If your down payment is already covered, the earnest money can help pay for lender fees, title fees, and other closing expenses.
• You may receive a refund. If your earnest money exceeds your total costs due at closing, you’ll get a refund for the excess amount. This is more common with VA loans or USDA loans, which require no down payment.

Example: Let’s say you put down $5,000 in earnest money on your dream home in Boston, MA. If your total amount due at closing (down payment + closing costs) is $20,000, then you would owe $15,000 more at closing.

So, can you get earnest money back at closing?

In most cases, yes – but it’s usually not as a direct refund. As mentioned above, instead of getting the earnest money back at closing as cash, it’s usually applied toward your down payment or closing costs. So, while you don’t get a check for the amount you put down, the money is still going toward the home purchase.

However, there are a few instances where you might get a refund:

• You paid more than you owe. If your earnest money deposit is higher than your required cash-to-close amount, you’ll get the excess back.
• You’re using a no-down-payment loan. If you’re using a VA or USDA loan, you don’t have to make a down payment. If your earnest money is higher than your closing costs, the extra amount will be refunded.
• You received seller concessions or lender credits. If the seller agrees to pay for some of your closing costs or your lender offers credits, the amount you owe at closing might be lower than the earnest money you already paid – leading to a refund.

Example: You put down $4,000 in earnest money for a house in Portland, OR, but thanks to seller concessions and lender credits, you only owe $3,000 at closing. That means you’ll receive $1,000 of earnest money back.

Alternative scenarios: What else could happen to earnest money?

There are a few situations where earnest money could be refunded or lost:

1. You back out due to a contingency → you get your earnest money back

Most purchase agreements include contingencies that allow you to cancel the deal without penalty. If you back out for one of these protected reasons, you’ll get your earnest money back.

• Inspection contingency: If the home inspection reveals serious issues and you decide to walk away (within the agreed timeframe), you can get your money back.
• Financing contingency: If your loan falls through despite your best efforts, you can typically back out and recover your earnest money.
• Appraisal contingency: If the home appraises for less than the purchase price and you can’t negotiate a lower price, you might be able to walk away with your deposit.

2. You back out for no valid reason → seller keeps earnest money

If you decide not to go through with the purchase without a contract-protected reason, the seller will likely keep your earnest money as compensation for lost time and effort.

3. The seller backs out → you get your earnest money back

If the seller cancels the deal (without a reason allowed in the contract), you should get your earnest money back in full. In some cases, you may even have legal grounds to sue for damages.

4. The closing is delayed → money stays in escrow

If closing is pushed back due to title issues, financing delays, or other factors, your earnest money stays in escrow until the sale is finalized.

5. The deal falls through due to an appraisal gap → depends on your contract

If the home’s appraisal is lower than the purchase price and you don’t have an appraisal contingency, you may have to make up the difference or lose your earnest money.