How to Put Down Earnest Money and Not Get Burned

Takeaway

When you buy a house, you’ll usually put down earnest money to prove you’re serious. If the deal falls apart for valid reasons, you can get it back. If you walk away without a reason, you may lose it. And your deposit has to come from clean, seasoned funds—not fresh transfers or cash deposits.

What Is Earnest Money?

Earnest money is a deposit you pay once the seller accepts your offer. It’s typically 1%–3% of the home price and is held in escrow until closing. If the deal closes, that money goes toward your down payment or closing costs (Investopedia).

When Do You Get It Back?

• If problems arise: A bad inspection, low appraisal, or loan denial can trigger a refund if your contract covers it (Nolo).
• If the seller backs out: You’ll get your deposit back if the seller walks away without reason (Homeownership Matters).
• If you walk away without protection: Miss a deadline or back out without a contingency, and the seller may keep the deposit as damages (National Paralegal).
• If there’s a dispute: Escrow holds the money until both sides agree or a court decides (LegalShield).

Where Your Deposit Money Can Come From

Your lender must see that your earnest money comes from a legitimate source. That means it has to be “sourced” (you can prove where it came from) and “seasoned” (in your account at least 60 days). No large last-minute cash deposits or unexplained transfers (Bankrate, Experian).

How to Protect Yourself

• Make sure your contract has strong contingencies—inspection, financing, and appraisal.
• Always meet deadlines or get extensions in writing.
• Keep the money in your own account for at least 2 months before using it.
• Have the money held by a neutral escrow company, not the seller.