Key Takeaways
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Earnest money deposits show commitment and can improve your offer’s appeal.
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VA loans don’t require earnest money, but sellers may expect it.
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Contingencies protect your deposit and ensure refund eligibility.
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Refunds depend on contract terms, timelines, and proper execution.
Including an earnest money deposit in your offer can give you a competitive edge—especially in today’s fast-paced real estate market. While VA loans do not require earnest money, including it can strengthen your offer and demonstrate serious buyer intent. This guide explains how earnest money works, when it can be refunded, and what buyers—especially those using VA loans—need to know to protect their investment.
How Earnest Money Works
Earnest money is typically submitted with your purchase offer. The funds are held in an escrow account, often managed by a title company or the real estate agent, until closing. Depending on your contract, the deposit is either applied toward the down payment or closing costs, or refunded.
| Earnest Money at Closing | What Happens |
| Applied to Down Payment | Helps reduce what you owe at closing |
| Applied to Closing Costs | Offsets total costs due at settlement |
| Refunded | Common with VA loans when costs are fully covered |
Do VA Loans Require Earnest Money?
No, VA loans do not require an earnest money deposit, but including one can help. Sellers expect it in most markets, and even a small amount signals good faith. Since VA loans often have limited out-of-pocket costs, any refunded earnest money can be retained by the buyer at closing.
What If You Back Out of the Deal?
If you cancel the contract for a reason not covered by contingencies, you may lose your deposit. That’s why it’s critical to include clear contract contingencies that protect your earnest money.
Common Contingencies That Protect Earnest Money
| Contingency Type | Purpose |
| Inspection Contingency | Allows you to cancel if significant issues are found during home inspection |
| Appraisal Contingency | Protects VA loan buyers if home doesn’t appraise for purchase price |
| Financing Contingency | Cancels contract if loan approval fails within the agreed timeline |
| Home Sale Contingency | Lets you cancel if you can’t sell your current home |
Each contingency should include clear terms and deadlines.
Is Earnest Money Refundable?
Yes, earnest money is refundable when contract contingencies are met. For example, if the inspection uncovers major problems or the home fails to appraise, you can cancel the contract and receive a refund.
To ensure your refund:
- Include clear contingencies
- Respect all timelines
- Work with a knowledgeable agent
How Much Earnest Money Should You Offer?
The amount depends on your local market and the home type.
| Property Type | Typical Earnest Money Amount |
| Resale Home | 1% – 3% of the purchase price |
| New Construction | Up to 10% of the purchase price |
For a $300,000 home, expect to offer between $3,000 and $9,000. In highly competitive markets, a larger deposit may give your offer an edge.
Tips for Choosing Your Deposit Amount
- Ask your real estate agent about local expectations
- Consider how fast homes are selling in your area
- Set an amount that fits your financial comfort zone
- Avoid overcommitting—this is real money on the line
Is Earnest Money Worth It?
Absolutely. An earnest money deposit can boost your credibility as a buyer. While VA loan guidelines don’t require it, earnest money shows you’re committed to the process. It can also help you stand out when bidding against other buyers.
Just remember to:
- Include key contingencies
- Understand your refund rights
- Partner with an experienced agent and lender
Used properly, earnest money protects your interests and helps secure your future home.
FAQs: Earnest Money
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