Key Takeaways
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Earnest money strengthens your offer by showing commitment to the seller.
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A down payment is a long-term investment that reduces your total loan amount.
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Contingencies protect your earnest money if the transaction cannot move forward.
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Knowing how each payment works helps buyers plan strategically for the full homebuying process.
Understanding earnest money, a down payment, and the full earnest money vs. down payment comparison is essential when preparing to purchase a home. These homebuying terms carry different responsibilities, affect your financing strategy, and directly influence how strong your offer appears. When you know how earnest money works, understand down payment requirements, and learn how to protect your deposit, you can navigate the homebuying process with confidence and avoid costly surprises.
What Is Earnest Money?
Earnest money is a good-faith deposit submitted with your purchase offer. It proves to the seller that you intend to move forward with the transaction. While the amount varies by market, buyers typically offer 1% to 3% of the purchase price.
Earnest money serves several purposes:
- It signals genuine interest in the property.
- It helps your offer stand out in competitive situations.
- It protects the seller if a buyer backs out without a valid reason.
After the seller accepts the offer, the earnest money goes into an escrow account until closing. Although the deposit shows commitment, it isn’t an extra fee. Once the transaction closes, the funds apply toward your down payment or closing costs.
What Is a Down Payment?
A down payment is the portion of the home’s purchase price you contribute at closing. It represents a long-term investment and reduces the total amount you need to borrow. Loan programs determine the minimum required amount, and buyers frequently put down anywhere from 3% to 20% or more.
A larger down payment can:
- Lower your loan amount
- Reduce your monthly mortgage payment
- Improve the terms lenders offer
Because a down payment occurs at closing—not at the offer stage—it plays a different role than earnest money.
Earnest Money vs. Down Payment: Side-by-Side Comparison
The table below highlights the main differences between these two payments:
| Feature | Earnest Money | Down Payment |
| When it’s paid | When your offer is accepted | At closing |
| Typical amount | 1–3% of the purchase price | 3–20%+ of the purchase price |
| Purpose | Shows buyer commitment; secures the sale | Reduces loan balance; contributes to home cost |
| Held in escrow | Yes | No |
| Refundable? | Sometimes, if contingencies apply | Generally no |
Does Earnest Money Go Toward Your Down Payment?
Yes. Once the home closes, your earnest money becomes a credit toward the amount you owe at closing. For example, if you submit 2% as earnest money and plan a 5% down payment, you only owe the remaining 3% at closing in addition to closing costs.
What Happens If the Deal Falls Through?
Contingencies determine whether earnest money is refundable. Common protections include the appraisal, financing, and inspection contingencies. If one of these fails, the earnest money typically returns to the buyer.
However, earnest money may be forfeited when:
- A buyer withdraws without a contingency
- Deadlines lapse without an extension
- Contract terms are violated
If the seller cancels the transaction, the earnest money is returned to the buyer.
Bottom Line
Earnest money and a down payment both signal commitment, but they serve very different purposes. Earnest money is your good-faith deposit that strengthens the offer, while the down payment is your long-term financial investment at closing. With the right preparation and guidance from a mortgage professional, you can determine the correct amount to offer, protect your deposit, and choose a down payment strategy that supports your financial goals.
FAQs About Earnest Money & Down Payment
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